OK Beemer: Why European luxury sedans are becoming a relic of the past and electric SUVs are on the rise

Source: By Faiz Siddiqui, Washington Post • Posted: Sunday, December 8, 2019

The sheen has worn off luxury automakers’ small sedans, like the Mercedes C-Class and BMW 3 Series, as the popularity of SUVs and Tesla grows.

People visit a Tesla showroom in Berlin earlier this month. (Felipe Trueba/EPA-EFE/Shutterstock)
People visit a Tesla showroom in Berlin earlier this month. (Felipe Trueba/EPA-EFE/Shutterstock)

LOS ANGELES — Elizabeth Dickson recently decided to skip a luxury gas-guzzling vehicle, instead purchasing a Tesla Model 3.

While the Tesla carried a more expensive monthly payment, the 25-year-old from Raleigh, N.C., said the gas savings and anticipated lack of maintenance offset the added cost. Plus, she wanted to be surrounded by cutting-edge technology.

“There’s things that Tesla is doing that other brands aren’t even considering right now,” said Dickson, an operations manager for a large airline. “It just makes more sense.”

The rapid embrace of upscale electric cars by aspirational consumers like Dickson shows how battery-powered vehicles are primed to become a major force in the auto industry, with broad implications for mechanics, autoworkers, oil companies and environmentalists. While many have long predicted an electric car revolution, Tesla’s quick success in the luxury market — which often sets the direction for the entire automotive industry — shows that the tipping point may have already happened.

Just two years after launching the Model 3 into production, Tesla far outsells vehicles in the luxury sport sedan segment by its direct competitors, including Mercedes-Benz, BMW, Audi and Lexus, according to Edmunds market data reviewed by The Washington Post. The company claims it has bested its all of its direct competitors from those brands combined, based on delivery data.

Many of those brands are reacting by introducing their own versions, largely SUVs and crossovers, given Americans’ appetite for larger vehicles. Luxury automakers making a bid in the sweet spot between electrification and SUVs include Mercedes, Audi, Volvo and Tesla, which predicts its Model Y crossover, set to launch next year, will become its best-selling vehicle.

Indeed, at the recently wrapped Los Angeles Auto Show, gas guzzlers were largely relegated to the side. Spectators crowded around Ford, which showed off the Mustang Mach-E, a new electric SUV with a familiar shape that might otherwise be indistinguishable from a gas-powered vehicle. Other automakers dedicated their prime turntable displays to their latest electric concepts, such as a wagon from Volkswagen and Audi’s line of electric vehicles, including the E-Tron SUV and upcoming E-Tron Sportback, a sportier variant with a crossover look.

The trend is expected to hasten the death of the gas sedan, which is shrinking what once was a car-industry staple to a shell of its former footprint.

Ford recently scrapped U.S. production of sedans entirely, then debuted the Mustang Mach-E SUV, which sold out reservations a few days later. Mercedes is banking on the EQC, set to become available in the United States in 2020, with a family of electric vehicles to follow, while Audi is hoping its E-Tron line can translate to electric vehicle sales as consumers shift to SUVs.

“In the U.S., we expect no fewer than 25 new EV models to debut in 2020, consisting of 16 battery-powered EVs (BEVs) and nine plug-in hybrids,” said a recent analysis from Garrett Nelson of CFRA Research. “Moreover, nearly two-thirds (16) of the 25 new models are expected to be SUVs or crossovers.”

Data compiled by Edmunds shows U.S. sales of Mercedes C-Class and BMW’s 3 Series have fallen precipitously since 2014. The 3 Series sold nearly 100,000 units in 2014, but less than 40 percent of that in 2018, according to Edmunds. Mercedes’s C-Class fell by nearly 20 percent over the same period to 60,410 units last year, and nearly a third from the model’s 2015 peak of 87,728 units.

Analysts say there are several factors at play in the decline of luxury sedan sales, including consumers’ increasing preference toward bigger cars and the refresh cycle, where consumer interest spikes around newly released models and dwindles with annual updates. But it’s also a recognition of a new reality in the automotive landscape, and new models are a way to try to take back some of the market as consumers shift to electric vehicles.

Audi’s new E-Tron, which starts at around $75,000 and has a range of 204 miles, appeals to buyers who may have previously hesitated to pull the trigger on an electric car, said spokesman Mark Dahncke. “The E-Tron is sourcing virtually all of its sales from various luxury SUV makes,” he added.

Ford is luring customers to its new Mach-E with promises of a 230-mile range and a price tag starting under $44,000, cheaper when customers factor in a $7,500 federal tax credit that is expiring for Tesla.

Inside the Los Angeles Convention Center, Divyam Patel was marveling at the new Mustang. Did he ever think he’d rush to the front of an auto show crowd to see a Ford?

“I tend to be more a German or Japanese car guy,” he said. “I came to look at it because it’s a brand new electric car from Ford, which is pretty exciting considering how much the industry was altered by Tesla.”

Patel, who drives a Volvo V60 station wagon and has historically had concerns about the range and sedan form factor of electric vehicles, said he could be drawn in by vehicles like the Mach-E.

“It’s from a historic manufacturer and they have a hundred-plus years of experience in making a car,” Patel added.

A recent market trend analysis from Cox Automotive showed SUVs have gone from 29 percent to nearly half of new vehicles sold nationwide over the past decade, while sedans now make up less than a third of new sales. Meanwhile, electric vehicles still make up less than 2 percent of new vehicles sold but have had an acute impact on one particular segment, according to analysts: the luxury sedan.

Still, it’s unclear whether the electric vehicle push will pay off. Automakers are embracing consumers’ preference for SUVs, which have been decried as heavier, less efficient and more dangerous in crashes, even in electric form. The vehicles have been cited in the rise in pedestrian deaths in cities because they are higher off the ground and the impact is likelier to strike vital organs.

Meanwhile, U.S. sales of the existing electric offerings, such as the Nissan Leaf, Chevrolet Bolt and BMW i3, have sputtered, with quarterly sales in the single thousands, analysts say, because of the value proposition posed by the similarly priced Tesla Model 3.

Nelson’s CFRA analysis said the electric vehicle push stands to benefit some automakers more than others. Despite the surge in new electric models, the report said, the new battery-powered cars won’t meaningfully add to sales or profitability for any of the companies other than Tesla. Still, by 2030, electric vehicles are expected to make up half of Volvo’s U.S. sales, a quarter of Mercedes and Volkswagen’s, and a fifth of BMW’s, according to the report.

Of the models, “I think probably a majority of them will be SUV or crossover,” said Nelson, because “that’s what’s selling with consumers.”

When Matt Casden, 48, of Los Angeles, was leasing a new car a few months ago, he considered going electric but opted for a BMW X5 SUV. Electric vehicle range and charging infrastructure weren’t advanced enough to give him peace of mind — especially for long road trips.

Standing in front of Mercedes’s EQC, the company’s upcoming electric SUV, he turned to his 13-year-old son, Eli.

“I said to him, the next time I get a car, he’ll be driving and I would try something like that,” Casden said.

BMW said that while 3 Series sales have fallen in recent years, its X3 and X5 SUVs have become its top sellers, recording year-over-year sales increases of 17 and 24 percent, respectively.

Mercedes saw the consumer shift toward SUVs and introduced a “sibling SUV model” to its C-Class, the GLC, that isn’t recorded alongside its lower sedan sales, said Mercedes spokeswoman Donna Boland. Sales volume is shifting to the GLC “in line with the still-growing trend to SUVs” in “far higher numbers than any defection to Model 3.”

Tesla alone has bucked the trend of the dying sedan with U.S. Model 3 sales of 138,876 in 2018, according to Edmunds estimates, compared with competitors that each logged less than half of those sales numbers since the Model 3′s release.

“The pull for an electric vehicle with the kind of style and performance that the Model 3 offers is higher than the pull to go to an SUV for a lot of consumers,” said Karl Brauer, an auto industry analyst who is the executive publisher of Autotrader and Kelley Blue Book.

The Model 3 introduced the masses to electric cars with a sleek form factor, a minimalist interior and a futuristic cabin controlled by a giant touch screen mounted in center of the dashboard. The cars’ Autopilot driver-assistance system aims to allow the vehicle to navigate from highway on-ramp to off-ramp without driver input, though the driver has to remain attentive at all times and the feature has come under regulatory scrutiny. On its SUV, the side doors swing up automatically.

Tesla’s display at the Los Angeles show, an unorthodox outdoor tent with palm trees and unlocked cars inviting show-goers to climb in, capped off a month in which its chief executive Elon Musk unveiled the company’s polarizing Cybertruck, a stainless-steel-framed behemoth with jagged proportions and sci-fi design inspiration. Musk said it already had 200,000 reservations at $100 apiece within a few days despite a rocky debut, and his brother Kimbal Musk — a Tesla board member — tweeted the figure was at 250,000 just over a week ago.

Still, Tesla could have trouble meeting market demand if its production line is stretched too thin by an array of new offerings; the company had to enter what it called “production hell” to keep pace with Model 3 demand.

Adriano Messina recently received a personalized invitation to his nearby Beverly Hills Mercedes-Benz dealership. Come take a tour of the state-of-the-art facility, it said, right around the time he was considering purchasing a new car. Messina, owner of a 2014 Mercedes C250 sedan, was ambivalent, he said.

Instead, he says he’s been thinking about ditching the three-pointed star on his grille and doing what was once unthinkable for a man of his Italian sensibilities: buying an American car. Specifically, a Tesla Model 3.

“It’s very ‘now,’ ” said Messina, a 34-year-old Alhambra, Calif., resident who works as a contractor in the hotel business. “I feel like everywhere I turn, I see Tesla.’ ”