Wednesday, June 2, 2021

The Luxury Car Price Premium

Last June I blogged about how electric vehicles (EVs) were luxury goods. I'm gearing up to write a post discussing what's changed in the intervening 12 months, and it occurred to me that last year I asserted that an 80%+ price premium for EVs over their internal combustion engine counterparts puts them into luxury territory, but I didn't justify the claim. Doing so would require knowing what luxury cars cost, broadly speaking, compared to their non-luxury counterparts. I didn't know what the luxury car premium was. I decided to find out.

For the TL;DR among you, here's the executive summary:

  • For compact SUVs, it costs about 55% more to step up from a non-luxury vehicle to a luxury one.
  • For compact sedans, it's more like 75%.
  • For midsized sedans, it's around 90%.

If you care about methodology and details, read on.

Several carmakers have premium brands. Toyota has Lexus, for example, and VW has Audi. I think a reasonable way to calculate the luxury car price premium is to look at how comparable cars from carmakers with luxury-and non-luxury brands are priced. Given, say, a compact sedan or SUV, how much higher is a Lexus priced compared to a Toyota or an Audi to a VW?

I used the following brand pairs:

Non-Luxury Brand   Luxury Brand
Toyota   Lexus
VW   Audi
Hyundai   Genesis
Nissan   Infiniti
Honda   Acura

At Consumer Reports (paywall), I looked up price ranges for models of these brands in three categories: compact SUVs, compact sedans, and midsized sedans. For the bottom and the top end of the price range for comparable models (e.g., Toyota RAV4 vs. Lexus NX or Hyundai Elantra vs. Genesis G70), I calculated the price premium for the pair. I also averaged the bottom prices and the top prices for all the models in each category, and I calculated an average category price premium. Here are all the data:

Finally, I took the calculated results and rounded them a bit for the executive summary above. I rounded the computed 56% average price premium for compact SUVs down to 55%, for example, and I rounded the computed 92% average price premium for midsized cars down to 90%.

The data show that last year's 80%+ price premium for EVs (compared to non-EVs) put them squarely into the luxury car realm. There are a lot more EVs available this year, however, so things may have changed. In my next post, I plan to discuss whether they have.

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