How does VW plan to boost the output? The block, crank, and rods would all remain but the cylinder head would be changed and accompanied by a larger turbocharger. This makes the motor cheaper to build than the AMG M133. It also means the pistons would likely be changed probably to a lower compression set as Mercedes pushes 26 pounds of boost stock with a relatively low for a direct injection motor 8.6:1 compression ratio.
The Audi RS3 would also have to be moved up in output a bit to distance itself from this new S3 especially if it has all wheel drive and a DSG transmission.
So why is Audi/VW pushing the four-cylinders so hard? Well just about this time last year VW poached AMG's head of engine development who was responsible for the AMG 2.0 liter M133 motor. Now the task will be to outdo what he did for Mercedes with VW/Audi being the benefactors of his knowledge. If he succeeds, he is worth whatever they paid for him and then some.