Heres my $.02
If you want more HP you're going to have to go at it the same way Audi does; compression ratio. There are two basic ways to effectively increase your CR. 1) Decrease the size of the squish area in the cylinder maintaing the same volume of A/F mix. 2) Increase the volume of A/F mix going into the cylinder while maintaining the volume of the cylinder.
Since our V8s are normally aspirated we are (sort of) limited to option one. Option one requires actual mechanical work which means labor, which means money.
So how did Audi do it? Compare the S4 and RS4 engines. The V8 MPI engine features 11:1 CR while the V8 FSI has 12.5:1; a pretty significant increase. I'd venture to guess that just by getting your CR up to 12.5:1 you'll be close to 400hp out of this motor. On the bottom end bore and stroke sizes are same in both motors with the most significant changes being careful crank balancing and closer tolerances at the bearing surfaces. The FSI system is just the push over the cliff ("our amps go to 11") it is basically keeping the A/F mixture optimal at all times and saving you gas when you aren't giving it the boot.
Option two involves turbos or superchargers. Chipping these types of engines always has a "wow" factor since the factory generally stays conservative to increase the reliability of these engines for the average consumer. So for $20K more you will either get and RS4 or a superchaged MTM S4, pick your poison...
So why does freeing up the exhaust flow reduce the torque? Well you've basically changed the A/F mixture and the ECM isn't compensating or the injectors are maxed out and can't add more fuel to the larger amount of air that can now flow into the cylinder. In the case of the guy above with the GIAC 93 program I'd wonder just how good the chip program really is? Maybe it hadn't been driven enough to adapt yet? Dunno, but raises some interesting questions.
If you really want to get some insight into the V8 FSI engine (and to a lesser degree the V8 MPI) I'd recommend subscribing to eBahn and reviewing the Self-Study Programs in the S4 manual. Good stuff! I even learned what that flapper valve in the bottom of the air filter housing is for.
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