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Well, the Bug body is not very clean from an aero standpoint, and the driveline is not very efficient either, but things can be improved.
Using adapters from Kennedy Engineering would allow almost any kind of modern water cooled engine to be fitted. Also, there are all kinds of gears available for VW Type 1 gearboxes. My diesel powered Porsche 356 uses a Type 1 trany from Rancho that has a 3:44 r&p, and a .7 4th gear. With those cogs, 2000 rpm means 62 mph.
That kind of driveline with a cleaner body (maybe some kind of kit car?) could yield big mpg numbers.
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