Audi is converting its factory in Gyor, Hungary, into a full assembly plant to build A3 and TT cars.
Currently, Gyor assembles the TT coupe and roadster and A3 Cabriolet using locally built engines with other parts shipped in from Audi's home plant in Ingolstadt in Bavaria, Germany.
Starting in 2013, Gyor will do the entire manufacturing process on its own, from chassis production to assembly, Audi said in a statement. Gyor will also build another version of the A3 model.
Audi said it will invest 900 million euros ($1.2 billion) to turn the plant into a full-fledged car factory, building 125,000 cars a year and creating 1,800 new jobs.
CEO Rupert Stadler said the expansion will boost the company's growth plans.
The Volkswagen AG-owned premium brand is targeting record new-car sales of more than 1.08 million this year, an increase of 14 percent from a year earlier as it aims to dethrone BMW as the world's biggest luxury car maker by 2015.
"Hungary created an excellent foundation in terms of the quality of the labor force, the flexibility of the working hours and not the least the wage structure," Stadler told a news conference on Thursday.
Other automakers are also expanding in Hungary.
On Tuesday, General Motors Co.said it would invest $655 million to expand capacity at its Opel/Vauxhall factory in Hungary, to build a new family of Euro 6-compliant, fuel-efficient engines.
Daimler will open its first Mercedes-Benz factory in eastern Europe in Kecskemet, about 80km southeast of Budapest, in 2012. The factory will build 100,000 units a year of the next-generation A- and B-class entry-premium cars.
Analysts said Hungary is an appealing investment destination because of a weakening forint and low wage inflation. It also has skilled labor and good highway infrastructure.