The new agreement is intended to free up production resources and relieve pressure on JLR's UK factories, which are understood to be nearing full capacity.
Magna Steyr, which operates its own factory in Graz, Austria, already builds vehicles for other car manufacturers. In the past, Magna Steyr has produced cars including the Peugeot RCZ, the Mercedes-Benz E-Class and the Mini Countryman.
While Jaguar Land Rover hasn't revealed which vehicles will be produced at the Magna Steyr plant, possible candidates for Magna Steyr to build include the Land Rover Discovery Sport, the upcoming Range Rover Evoque Cabriolet and a smaller variant of the Jaguar F-Pace crossover.
JLR has already committed to bringing 12 new or refreshed vehicles to market over the course of 2015-16. At the same time the firm will invest £3.6 billion on new vehicle development and expansion.
Bringing some vehicle manufacturing to the Magna Steyr site will allow the firm more time to search for its own bespoke European factory. Autocar understands the new plant will build models based on the company’s new aluminium architecture, with the upcoming Defender replacement being the lead candidate for overseas production.
Although the move to build an east European plant might prove controversial, JLR’s three UK plants are already packed to capacity.
The Evoque and Discovery Sport – both based on JLR's steel D8 platform – are currently built in the northwest at Halewood, which is thought to be operating at maximum capacity.
The Castle Bromwich site will build the new XF and the F-Pace, which are both based on the smaller D7a aluminium architecture.
Solihull is building the Range Rover, Range Rover Sport and the Jaguar XE. Trying squeeze in both Discovery 5 production as well as the expected third Range Rover model could result in the Discovery 5 being made in eastern Europe.
Known internally as ‘Project Darwin’ and codenamed L663, the new Defender should be the main product line for the new facility. However, if sales of the Range Rover Sport continue to boom and the Jaguar F-Pace crossover is also a sales success, lack of capacity in the UK might mean another model has to be made at the new plant.
Autocar understands that the current thinking among JLR planners is that the Discovery 5 – codenamed L462 – could also be made at the new facility.
Sources say JLR bosses have narrowed down a site for its new factory to two potential locations.
The first possibility is near Gyor in Hungary, which would allow the company to take advantage of the supplier base built up by Audi for the local production of the TT Coupé and its four-cylinder engines.
The second possible site is somewhere in Poland, although the sources could not be more specific.
JLR sources privately insist that opening a plant in central or eastern Europe and moving some production to Austria is not a vote of no-confidence in the UK but simply a function of the UK plants getting close to capacity and the need to spread its production footprint, following the lead of rivals such as Mercedes and BMW.