Luxury cars: Trends helping this segment defy expectations

What does your dream car look like? Is it a BMW, a Mercedez-Benz, an Audi, or a Ferrari? While considered to be an aspirational product, luxury cars sit on the top of this venerable mountain; they are the ultimate status symbol in many ways.

Luxury cars are an exception to the rule when it comes to the automobile market. In stark contrast to their non luxury automobile counterparts, the luxury car segment has been witnessing accelerated demand across the world.  According to Data Bridge Market Research, with top competitors like AUDI, Tesla, Daimler, BMW, and others, the luxury car market is expected to grow significantly to USD 350.37 billion by 2029 at a CAGR of 12.75 percent.

Presently, luxury cars account for 13 percent of the global sales of cars. Factors like next gen connectivity, new regulations, changing customer preferences and automobile design paradigms have had an impact on this sector.  Let’s take a closer look, based on insights from McKinsey at how the luxury car market is set to be reshaped.

Luxury cars are growing as a status symbol

The continued increase of ultra-high-net-worth individuals (UHNWI) has greatly impelled the luxury car segments’ growth. People who have investable assets of above $ 30 million are deemed to UHNWI, whereas those with assets ranging $1 to $30 million can be considered as being high-net-worth-individuals (HNWI). The HNWI and UHNWI target audience is growing significantly in the regions of the Middle East, America, Asia, and even Europe.  Further, more product launches in the luxury segment have happened because of technology shifts, especially in markets like China.

How is the luxury market segmented?

The three major categories for segregation are by powertrain, by brand, and by price.

While the luxury car segments are expected to grow till 2031 at a CAGR of 8 to 14 percent. However, contrary to the high growth of the luxury car segment, the overall market for cars is expected to remain flat and grow only at 1 per cent per year.  As discussed above, UNHWI and HNWI are playing a critical role in the growth of the luxury car segment.

Changing market preferences impacting growth

Luxury auto manufacturers generally develop cars meant for global markets. However, varied customer preferences in different markets like the US, China and Europe are redefining luxury cars as per news reports.

For example, in the US, the first preference is given to driving performance followed by the overall experience of ownership, interior design and functionality, powertrain. The exterior design does not get much emphasis. Whereas European buyers focus more on the powertrain, followed by interior design and functionality and overall ownership experience. For China, the powertrain is the biggest priority followed by driving performance, brand, connectivity, and the overall experience of ownership. It is the subtle and yet significant differences that are having an impact on the luxury car market.

Presently, compared to 62 percent of mass-market clients, almost 73% of buyers of premium cars begin their search online.

The Indian luxury car market was valued $1.06 billion in 2021. The luxury car market in India is anticipated to grow at a CAGR of more than 6.4 percent from 2022 to 2027, reaching a value of over USD 1.54 billion according to estimates by Mordor Intelligence.

As per McKinsey, growth is expected to vary in luxury car sector based on segmentation. Largely, the growth would be impacted by the price range as expansion will happen in varying degrees, with higher premium growing expected to grow exponentially.  Key players in the luxury cars sector are focussing on a diverse product portfolio, features, and USPs to drive further growth.

$80,000 to $149,000 segment: It is expected that there will be an increase in competition intensity in the $80,000 to $149,000 range with the foray of new players.

$150,000 to $500,000:  Until 2031, this segment will increase consistently by nine to ten percentage CAGR.

$500,000 and above: Significant momentum is expected in this segment.

What about Electric Vehicles in the luxury segment?

Battery-electric vehicles (BEVs)  shall dominate across all luxury-segment levels by 2031, according to McKinsey’s accelerated scenario, albeit the level of adoption would differ depending on the price range. Apparently affluent clients are open to EVs and increasingly prioritise sustainability. For instance, more than 70% of existing premium and luxury internal-combustion-engine (ICE) vehicle owners worldwide are ready to make the move to EVs when they make their next auto purchase.

The Luxury vehicles segment is gaining global traction

While the luxury segment is expected to grow significantly till 2031, the geographical makeup of its markets shall witness major shifts. It is expected that the Asia Pacific region shall witness the most growth and China, which is a non traditional market, shall acquire momentum. A major contributor to the growth of the luxury car segment is expected increase in UHNWIs and HNWIs from 2021 and 2026.




Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of ET Edge Insights, its management, or its members

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