AUDI LOOKS SET to introduce a competitor to BMW’s rumoured City electric car and Daimler’s Smart brand in the form of the 2012 Audi E1.

Taking a leaf from the sub-compact ‘kei’ cars of Japan, the E1 will reportedly be powered by a 600cc turbocharged two-cylinder engine, although it’s unclear whether petrol or diesel would be the fuel of choice for the ’supermini’ E1.

The tiny two-cylinder would emit less than 100g/km in CO2 emissions and return fuel consumption figures of around 2.5 to 3.0 l/100km.

The E1 would likely be built on the same platform used by the diminutive Volkswagen Up!, competing with the Ford Ka, Toyota iQ and Fiat 500 (the Fiat being the only model of that trio available in Australia).

Positioned at the very entry-level end of the Audi line-up and slotting in beneath the upcoming A1 small car, unconfirmed reports indicate the E1 will also be available with a 1.2 litre three-cylinder engine to make extended highway driving a more manageable task.

Speculation abounds of an all-electric version of the E1 as well, although no firm details have surfaced as yet.

Volkswagen’s Up! supermini is rumoured to be destined for showrooms by 2010 - despite VW boss Dr Martin Winterkorn pointing to a 2013 launch - with the E1 to follow in late 2011.