US luxury car market: It\'s time to reinvent the wheel

  • Mar 04, 2016
[caption id="attachment_13507" align="aligncenter" width="1024"]Tesla to enter India Tesla Model S[/caption]

The car market in the US is like a huge American pie and everyone wants a slice. Americans purchase cars like it's groceries and the car market is what helps drive the economy and create jobs. The government too helps automakers by keeping the taxes low on cars as well as fuel.

In a market where cars are considered a commodity, it takes luxury cars to deliver the message across to your peers that you've made it. And by luxury, I don't mean just about any Benz or Bimmer, it means shopping for the top tier luxury car. Something in the lines of Panamera, S-Class, 7 Series, A8 and XJ.

Brands like Mercedes-Benz, BMW, Jaguar and Porsche bring along a rich history and a way of making and selling cars that hasn't been challenged. If selling cars in the crowded American market is difficult, imagine the plight of a startup if it decided to specifically target the top dogs in the luxury car segment.

Tesla Model S, introduced in June 2012, looked like it was made up of dreams and unicorn horns, something that couldn't affect the car industry, let alone the luxury cars. After all, it was a brand born out of Silicon Valley, not Detroit. The company knew more about processor chips than cars. Turns out, those who thought so, need their heads re-examined.

[caption id="attachment_14839" align="aligncenter" width="1024"]Eberhard Kern at the launch of the S-Class in India Eberhard Kern at the launch of the S-Class in India[/caption]

The company didn't just reveal a car, it revealed an electric car. It's not like it was the first electric car in the country, others had tried and failed miserably. So the manufacturers weren't worried about the Model S. Many thought it'd remain a 'gadget on wheels' and given the rising fuel prices in 2012 and 2013, only those looking at cheaper modes of transportation would pick it. Luxury car brands immediately dismissed it as a potential threat and concluded that cars running on petrol would continue to sell for decades the way they've been selling for decades.

I, though, never looked at it as a product for those concerned with fuel prices. It's priced the way a luxury car should be; with a mandatory top variant that crosses the US $100,000 (~Rs. 67.25 lakh) mark before taxes.

In a few years' time, fuel prices plummeted. From mid-2012 (launch) to mid-2014 (fuel price landslide), Tesla added more Model S variants with new features and more power. Hardware to enable self-driving in future was offered on some variants, which came out of nowhere at a time when consumers and competitors were least expecting it. P85D later added an Insane Mode to the car, which, true to its name, pumped more current to the motors to help the luxury sedan get to 100 km/h from standstill in hypercar-like 3.2 seconds. If the Insane Mode wasn't enough, P90D added another level of ludicrosity with a Ludicrous Mode, which could propel it to triple digits in an aircraft-like 2.8 seconds with occupants experience close to 1.2 G. Over-the-air updates allowed it to put those self-driving cameras and radars to good use offering further exclusivity over other run-of-the-mill luxury cars.

[caption id="attachment_90734" align="aligncenter" width="598"]BMW 7 Series BMW 7 Series[/caption]

Heavy battery packs placed super low allow it to have the kind of handling that others have to sacrifice for the sake of comfort. Even the base variant handles unlike any other luxury car. The top-spec P90D adds stiffer springs and wider low-profile tyres to help it ricochet out of a corner.

While competitors looked at adding luxurious features like softer leather, bigger engine, wooden accents and champagne holders, Tesla lured buyers with features like self-driving, a king-sized 17-inch touchscreen infotainment system, over-the-air updates, super-silent ride and such. These features caught the attention of young tech-savvy CEOs in the Silicon Valley and rhymed with their needs.

Dropping oil prices were supposed to take the sales of the environment-friendly Tesla Model S with it. But the sales figures didn't go down, although it became difficult to maintain the growth trajectory that was apparent in the initial two years. Slowly and steadily, gas prices in the States dropped to $2 a gallon and the Model S still kept rolling off the factory in increasing numbers.

Let's compare the number of luxury cars sold in the US last year and with the 2014 figures.

[caption id="attachment_96284" align="aligncenter" width="733"]US luxury car sales comparison (2014 vs 2015) US luxury car sales comparison (2014 vs 2015)[/caption]

As clearly evident, the entire luxury car market saw a marginal decline of ~1,200 units or just 1.21%. What's more drastic is that all cars in the segment experienced a decline greater than what the segment saw. All that loss suffered by the traditional luxury cars was made up for by the revolutionary Model S, which spiked from 18,480 units in 2014 to 26,566 in 2015. Tesla moved a massive 43% more cars to buyers' homes in 2015 compared to a year ago when the fuel prices are as low as $2 a gallon. That's because the Model S operates in a category that's least affected by fuel price fluctuations.

When the segment leader, S-Class, loses 13% of its sales and the top spot to a Silicon Valley "kid" like Tesla Motors, it's a clear sign that the right-wing automakers need to reinvent the wheel. It's time for a big change in, not only the luxury car category, but the entire auto industry to tap into the growing demand of smart, connected cars, something that can take care of itself when the driver is driving and even drive itself if the driver has had a long day. Of course, the legislation doesn't allow cars drive themselves around for extended durations but, at least, the hardware and software are ready for prime time.

[caption id="attachment_91840" align="aligncenter" width="1024"]Chevrolet-Bolt-EV-Exteriors-Front-Three-Quarters Chevrolet Bolt EV[/caption]

The buyers' priorities have changed, which could be part of the reason why BMW is working hard to add some 'smart' to its i line of cars. Mercedes-Benz too is preparing to arm itself before the new wave of smart cars hits the shore. Now that the world secretly knows that the big boy from Cupertino is about to enter the automotive scene, it's time to bring about an unprecedented change in the industry. And, boy, are we excited to see Tesla flood streets with its most affordable electric car, Model 3, that'll go against the Chevy Bolt, which is launching later in 2016.

I think it's time traditional car makers put their game face on.


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