Audi is preparing a hybrid luxury sedan to rival Mercedes S400 Hybrid. And they seem to be very serious about beating the Merc, becasue while Stuttgart-based car comes with a 3.5 liter V6 as the base engine, the Inglostadt’s contender, which is due in 2012, gets a four-pot.

So while it probably won’t be able to match the performance of the S-Class hybrid, it’ll almost certainly beat its 26 mpg fuel consumption, you know, unless Mercedes upgrades that car until 2012. And with hybrids, economy is more important than everything so even the lack of performance won’t be a major downside for the Audi.

The four-cylinder Audi A8 can also upset the market of the newly introduced Mercedes S250 which also gets a four-cylinder engine, a diesel one. Audi will also soon introduce a six-cylinder variant of its flagship sedan in Europe.