The "Premium" Automotive Segment is a Mirage

A falling tide beaches many boats.

The automotive industry hit "peak car " in 2017 and will continue to stagnate at best. Certain brands within the industry have suggested that while this is true, it doesn't apply to them, as the top end of the market is "robust". After all, the fortune-tellers have projected growth ("10.5% CAGR through 2030") in the "premium" or "luxury" market segment.

Absurd. Any consultant can make a "segment" grow, simply by adding players, by extrapolating linear growth from a short time-span, or by using inflation-beating price increases. Easy mistake, when car prices are increasing above the rate of inflation - up 30% against pre-pandemic levels. "Premium" growth indeed. Building a strategy on this, however, is long-term blind and value-destructive.

A premium automotive segment is impossible to distinguish

Mckinsey linearly splits "premium" cars into buckets of $80,000+, $150,000+, $300,000+, and $500,000+ and finds a CAGR of "8 to 14 percent" - contortions that would make even a circus performer blush. By this categorization, a full-spec $100,000 Ford F-150 Lightning Platinum must clearly be more of a premium product than the $50,000 Mercedes-Benz X-Class pickup truck ever was.

In a time when there (still) are dozens, perhaps hundreds of new EV brands emerging, it's becoming impossible to classify the subsegments in automotive.

Is Tesla premium or mainstream? BMW's CEO Zipse suggests, "Tesla isn't quite part of the premium segment," yet that didn't keep Tesla from stealing over 20% of its customers from BMW, Audi, Lexus and Mercedes in its run to becoming the world's best-selling vehicle . In terms of performance it even competes with the fastest Italian supercars.

The absurdity of linear segmentation goes even further when some analysts split the industry into "Luxury" (Rolls-Royce etc), "Semi-Luxury" (Maserati), "Premium" (Alfa Romeo, Acura, Audi etc.), "Semi-Premium" (Mini, Lotus, Volkswagen), "Mainstream" (Honda, Kia), and "Budget" (Dacia etc.). Again: contortions.

What about the other new (or resurgent) brands? Is Lucid luxury or premium? Is NIO premium or mainstream? What about DS? Volvo? Polestar? Or the "premium EV for the masses " XPeng?

At €105,000, China's HiPhi (NYT reports) positions itself above "premium" and squarely in the "luxury" segment (albeit at lower price points) - much like Hongqi , whose imposing and impressive EVs will surely irritate Volkswagen's Bentley, if not Rolls-Royce ("Billionaires rejoice", said TopGear ).

A more advanced differentiation might prefer some form of a matrix - with a combination of "luxury", "performance", "cost", or "innovation" applied to the respective X and Y axis. I included the Sinus-Milieus consumer lifestyle segmentation as part of the strategy course I taught at 美国纽约大学 - just as Volkswagen and other OEMs do. But then again, Volkswagen has changed the architecture of its portfolio of brands three times in five years (1 , 2 , 3 ).

And for its excessively costly and overlapping portfolio of brands, Stellantis (aside from Maserati) finds 13 different ways to say "middle-of-the-pack" vehicles, meant for different geographic markets. "DolceVita" and "Eleganza" anyone?

Experience counts. And it's not delivered by "premium" brands

"It's the little things" - as we are so often reassured - that make the difference between premium and mass market.

Perhaps it's in the buying experience? That can't be it. "Warmth and Comfort" for $3,150 and a shipping charge on top of a $120,000 vehicle have been an irritant for decades. It's certainly not reflective of the "premium" all-inclusive experience one gets as a Business or First Class flyer, or perhaps as a customer of 酩悦·轩尼诗-路易·威登集团 .

Studies also can't confirm a better customer experience. J.D. Power in the U.S. somewhat arbitrarily separates mass and premium brands and finds Mitsubishi, Mazda, Buick and Subaru all scoring higher than ("premium") Mercedes-Benz, Audi and Volvo for dealer service. In fact, third-parties (dealerships and leasing companies) often handily outrank the OEMs in customer-centricity. Dependability or innovation (by number of patents ) are also not strong-suits of the premium brands.

In the UK, it's Subaru, Kia, and Mazda who outrank Lexus, Land Rover and BMW (by quite a bit) in owner satisfaction . Do we need to mention that Tesla outshines all other car companies in brand loyalty (followed by Ford and Toyota)? Tesla also outdoes all others in brand-value .

None of the typical things - price, product, dependability, customer-experience, buying experience, loyalty, or the aspirational value of the brand - justify legacy OEMs to deem themselves as part of a "premium" segment, apart from their competitors. Yet, they do.

It's not that there isn't a premium automotive market; it's just a self-proclaimed segment. Seemingly anyone can join. And this distorts projections, which in turn distorts the strategies of these OEMs.

Finally, the experience from the back seat

Not only are new and evolving brands disrupting what it means to be "luxury", "premium" or "mass market", all of the efforts to promote a brand will be mostly irrelevant when sitting in the back of a ridehailing or shared vehicle. It's hard to care about a logo on the steering wheel, when being driven, two rows back.

And as we progress toward buying autonomous "miles" instead of sheetmetal, GM ( Cruise ) and VW ( MOIA ) appear for the moment to be ahead of the "premium" brands. But in shared and autonomous mobility beyond automotive, there's a whole other ecosystem of brands to consider anyway...

Lukas is Managing Director of Neckermann Strategic Advisors , a boutique consultancy founded in 2013 with a unique focus on #mobility and #smartcities . He is an advisor to multiple companies across mobility, a lecturer at TU-Berlin and the IMO-HSG | Institute for Mobility , and the (co-)author of several books and research studies, including the #mobilityrevolution .