Premium envy

Ongoing chip shortages are forcing OEMs to prioritise their most profitable products, at the expense of lower-margin stablemates.

Jonathon Poskitt, Director, Global Sales Forecasts

01 November 2021

While the global automotive industry collectively struggles with sizeable supply-side issues, most notably a dearth of chips, not all face the crisis in equal measure.

OEMs have ensured that the most profitable products will continue to roll off production lines at the expense of lower-margin stablemates. That is the case whether it be higher-margin variants within a model line, with the vehicle mix favouring more profitable body types like SUVs or, for those OEMs with diverse brand portfolios, favouring production of their Premium and/or Super-Premium brands over brands that make less profit. Recent comments by the CEO of Rolls-Royce, Torsten Müller-Ötvös, in Automotive News, highlighted this when he stated that the luxury brand is getting “100 percent of the chips” needed to support sales.

This pecking-order advantage is supporting global Premium/Super-Premium market share, which is collectively set to climb by two percentage points between 2019 and 2021 to 16% of global Passenger Vehicle sales. In terms of the segment’s sales volume, 2021 is expected to match pre-pandemic 2019 record levels, despite overall Light Vehicle sales still being 11% off the pace set in 2019.

Chart: Global Premium/Super-Premium Sales Forecast (millions, units)

While, in aggregate, a less-disrupted supply chain has a positive impact on Premium segment market share (though that is certainly not to say that Premium brands have been immune to the disruption as they collectively faced a tough Q3 2021, for example), it is not the only factor supporting the segment. Solid share improvement this year, versus pre-pandemic levels, holds true in all key regional markets, but the importance of China in this development cannot be understated – in recent years, Premium vehicles have seen prices fall significantly and as Chinese consumers have eyed up vehicle replacement, Premium is increasingly an affordable option.

Globally, customers of higher-priced vehicles tended to be more insulated during the pandemic, with incomes less disrupted and sources of wealth, such as the stock market and property markets, holding up well; at the same time, an accumulation of savings over the last 18 months has also given greater flexibility to spend on more expensive vehicles. From a brand perspective, there has also been a key contribution from Tesla, ramping up Model 3 sales and introducing the Model Y. 

Over the next few years, although Premium market share growth will be more limited, further Premium/Super-Premium volume growth is forecast as recent gains are cemented with the help of model proliferation continuing at a greater rate among Premiums than the mass market, with one focal point being increasing offerings in the electric vehicle sector.