The new Volvo V40 means the Swedish car maker finally has a five-door hatch to rival the Audi A3 Sportback, BMW 1 Series and Volkswagen Golf.

While selling alongside the three-door C30, the Volvo V40 replaces the s40 compact sedan and twin V50 wagon in one swoop with a sporting design, as the V, according to Volvo, stands for ‘Versatile’.

On the outside, the Volvo V40 is instantly recognisable as a Volvo yet is cleverly executed with up-to-the-minute styling. It looks sporty, with a rising waistline that ends in an upward kick that echoes the classic Volvo P1800 sportscar, while the rear follows on from the C30 and 1980s 440 with its glass hatch.

There’s an optional glass roof that’s tinted black, giving the car a low stance, while the B-pillars and glass surrounds are also blacked-out for a sporty look. We’re testing the Volvo V40 in Europe ahead of its Australian release in either late 2012 or early 2013.

There are three trim lines for UK models, starting with the ES, SE and SE Lux. All offer a smart cabin that has taken a major step up from the S40.

There’s still super comfortable seats wrapped in either a mix of cloth and some clever new materials, or there’s leather on the SE Lux.

Either way, the front seats are well sculpted with a sports looks and reasonable side support, while the cloth seats are the same design with contrasting stitching. There’s plenty of room for a six-footer and more storage pockets – including the floating centre console – while there’s some clever stuff in the back.

On top of moulded-in cupholders near the doors, lower the armrest and there’s a set of pop-out cupholders, too, which neatly tuck away when not in use. The rear seats are also sculpted, while they’ve been moved inward to offer greater elbowroom. It also means rear passengers aren’t staring at the seatbacks in front of them.

Still, rear headroom is compromised slightly, meaning anyone more than six-feet tall won’t fit, even with the excellent glass roof optioned.

That sheds light, however, on the excellent surface finishes and textured dash, which sees a five-inch display and three-spoke leather wrap wheel. It has audio and cruise buttons on the wheel, while there’s a traditional park brake handle instead of the space-saving push-button electric versions in some rivals.

Option the sat-nav and you’ll get a seven-inch screen as part of the package. The Volvo V40’s driving position is low down with good all-round vision. The new digital dash is brilliant, with crystal clear colour graphics that outclass many pricier vehicles.

The display works with the three performance modes, which alter the throttle response and the weighting of the V40’s electric steering. The default ‘Elegance’ mode offers decent weighting a good turn-in, and there are good grip levels and decent body control from the front-wheel-drive hatch.

It’s not as sharp as the rear-wheel-drive BMW 1 Series, for example, even in the ‘Sport’ mode, which tightens up the steering feel and changes the dash display to include an integrated speedo/tachometer shrouded in traditional red mist.

‘Eco’ mode offers the most efficient of these, choosing the most economical gears to make the most of the start/stop and regenerative braking.

The ride on European roads is class leading, so there are high hopes for a cosseted, compliant ride even on Australia’s bumpier surfaces. That’s backed by a highly refined cabin and engines, which are improved versions of those found in the C30, S40 and V50.

The most efficient of the range is the D2, which is also expected to be the big seller. The entry-level Volvo V40 has official European cycle figures of 3.6L/100km courtesy of its 84kW 1.6-litre four-cylinder turbodiesel.

There’s also a 110kW D3 and a 130kW D4, the most potent diesel also coming with a healthy 400Nm of torque. Petrol engines comprise a 110kW four-cylinder T3, a 132kW T4, and the range-topping T5 is powered by a 187kW 2.5-litre turbocharged five-cylinder as seen in the C30 T5 hatch.

By far the most impressive combination from a driver’s perspective is the D4 that is well mated to the six-speed automatic and makes good use of its slabs of torque. It’s an excellent blend of economy and performance, and it has quite a rorty exhaust not when you’re pushing.

It’s a better pick than the T4 auto (the T5 debuts in Europe in November), which is ill-geared and not as effective or enjoyable point to point. Take the rare manual option if you’re after a punchy petrol-powered V40.

Of course, the D2 is the choice when shopping by numbers, and is a smooth but uneventful drive. In Europe, the Volvo V40 starts at around $3000 more than an entry-level Audi A3 and BMW 1-Series, but it would be a surprise if the Swedish hatch didn’t start below $40,000 in Australia.

A performance variant to rival the upcoming Mercedes-Benz A45 AMG and BMW M135i variants is expected to debut at the Paris show in September, badged as an R-Design. It’s expected to be powered by a more powerful version of the turbocharged five-cylinder found in the V40 T5 and C30 T5 and be priced at about $75,000.

The Volvo V40 is a worthy rival to the BMW 1 Series and should keep the forthcoming Audi A3 and Mercedes-Benz A-Class honest. It combines a well-made, spacious cabin with an excellent ride, good practicality, spades of character and an enjoyable drive.

It’s not as sporty or involving as a BMW, but some will prefer its styling and it offers a range of unique features and equipment that will sway if for some. 2013 is shaping up as a great battle for premium hatchbacks.