It may look like a boggo Gallardo being hammered around the Nürburgring, but have a close look at the exhaust layout of the Lamborghini and you'll spot some rough and ready bodywork - and four smaller exhausts rather than the traditional two drainpipe-sized tailpipes. That's because this mule is running the all-alloy direct injection V8 from the Audi R8.

In a bid to boost Gallardo sales – and reduce development costs by borrowing from sister company Audi – Lamborghini engineers have dropped the R8's 420bhp eight-cylinder into the Gallardo's midship engine bay to create a new entry level Lamborghini that will sit below the current V10 model but above the Audi R8.

So this is a cut-price Gallardo?

That's the thinking behind pilfering Audi's powerplant, but it's all relative, remember. The current V10 Gallardo costs £127,000, so expect this new derivative to cost around £105,000 – a decent saving but still enough of a premium over the £76,825 Audi R8 to justify its Raging Bull badge. Expect it to arrive at the Geneva motor show early next year, with a Spyder to follow for the start of 2009, neatly fulfilling Lamborghini's promise of a 'new' model each year.

It may steal the R8's engine, but don't expect the Gallardo to play second fiddle to the Audi. Although the superb V8 will get a mild power hike to around 430bhp, the Gallardo's lighter kerbweight (130kg less than the R8's) will give it a useful – and, from a marketing point of view, absolutely essential – in-gear performance advantage over the R8. Expect it to rip to 60mph in 4.5 seconds and on to a 195mph top speed.

Hmmm – but isn't a V10-powered R8 in the pipeline too?

Yes, it's all quite confusing. Audi will pull the wraps off a V10-powered R8 within the next 18 months, giving plenty of time to allow sales of the R8 to bed in and warm up buyers to the thought of a V8 Gallardo. The tricky bit will be pricing the hotter 500bhp R8 to distance it far enough from the standard R8 without stepping on the toes of the V8 Gallardo. We reckon on £95,000 for the V10 R8 – a decent premium over the eight-pot R8 but still shy of the entry-level Gallardo.