Luxury vs electric cars: BMW, Mercedes and Audi can’t keep up with Tesla or Nio – so how can they reinvent their brands for millennial drivers?

The Porsche 2020 Taycan; the Taycan is Porsche’s first electric vehicle. Photo: AP

This article is part of STYLE’s Luxury Column and was originally published in South China Morning Post

By Daniel Langer, CEO Équité

Over the last few months, I audited several premium and luxury car brands including Bentley, Porsche, Audi, BMW, Mercedes and Lexus. The results were worrisome for the incumbent car brands: the experiences that they reported were practically all the same. Even worse, nothing about the experiences were luxurious or created any lasting memory.

Why is this so dangerous? Cars already look and feel increasingly similar. This is driven in part by emission and safety regulations that have incentivised brands to optimise their designs for the lowest possible fuel consumption and maximisation of utility and safety. The result is that more and more cars, even in the premium and luxury spaces, are difficult to distinguish.

Where in the past brands had a signature look and feel, the current line-up of the most premium and luxury offerings is surprisingly similar. Your choice between, say, an Audi Q7, a BMW X5, a Porsche Cayenne or a Mercedes GLE becomes more a matter of your brand preference than of significant product differences. The choice of options and materials is pretty much the same.

As a way out, over the last decade car brands focused on creating certain design elements that are supposed to make them more distinguished, such as the front grille. However, as all grilles have grown exponentially, even this element becomes less distinct. Even worse, the interior of many brands’ vehicles have become less distinct, too, with the increased usage of ever-growing screens and touch operations.

The engine, on the other hand, has been the core competency of many brands. Some experts even argue that the heart of the brand is the engine. Consequently, BMW offers M-badged cars with more powerful engines developed by the M Motorsport department. The selling point is that you buy a high-end sports car in the form of an SUV or a limousine. Mercedes has a similar division, AMG. Porsche offers S versions of their cars and Audi similarly has a line-up of S and RS-badged cars, each equipped with some of the most powerful combustion engines money can buy. Those engines have become the defining elements of the brands. For many, driving a BMW M is a dream come true.

This strategy has worked for many decades and became a major profit driver. Customers who go for those in-house tuned versions often spend 20 to 50 per cent more for the extra performance. But now the cash cow faces some major threats. With the rapidly changing regulations, the days of the internal combustion engine (ICE) are numbered. Since the announcement of California to ban new ICE cars as of 2035 and similar legislative pushes all over the world, the market for luxury cars with these types of engines will see a drastic decline within the next five to eight years.

In many markets, the share of the incumbent brands in the luxury segment has already declined with Tesla conquering significant market share. The sales of Porsche’s Panamera seemed to shift significantly towards the fully electric Taycan, underlining a dramatic shift in consumer preferences. Nio, Lucid, Fisker, Rivian and others are around the corner and will further disrupt the car industry.

Regulations aside, no BMW M, Mercedes AMG or Audi RS can compete with these electric cars in terms of their core promise: performance. In fact, a US$60,000 Tesla Model 3 Performance will outperform most sports cars that cost twice or thrice as much, and the US$100,000 Tesla Model S Performance accelerates faster than a Porsche 911 Turbo S at over twice the price. The cost of providing sports car acceleration will soon be below US$30,000 – a hard sell for cars that go for US$150,000 and over.

And given the much simpler architecture of an electric car and the rapidly falling cost of batteries, there will be many electric cars on the road within the next decade that will make all of the previous ICE performance cars look like outdated slowcoaches. Even today’s best cars will feel like 2000’s Nokia 3310 battling against the iPhone 12. Fancy interiors and beautiful materials will not be able to compensate for performance deficits. Without a major strategy shift, the past premiums for ICE cars will not be sustainable.

The dilemma that luxury car brands face goes far beyond catching up on technology; they have to fundamentally redefine who they are. In our experience, not one salesperson has been able to provide a consistent, differentiating and value-creating brand story, which signals that these brands are having an identity crisis. They need to do critical brand audits, define who they want to be – distinguishing themselves from current and future competitors – and dramatically improve their customer experiences. If Mercedes can’t differentiate itself from BMW, Audi or Porsche, or vice versa, how will consumers understand the difference?

For newer brands like Tesla, Nio, Fisker and Lucid, this is a tremendous opportunity to capitalise on the massive brand experience weaknesses of their incumbent competitors. What they may still lack in scale, they may be able to compensate for in brand experience without the burden of having to manage an external network of dealers.

When Mercedes announced their first electric SUV, the EQC, the claim was, “electric is getting a Mercedes”. This is not brand storytelling – it’s a statement with very little value for customers. Even worse, Mercedes admits that real luxury is electric on its website, saying: “quiet, calm, clean and smooth, electric vehicles represent not only the future of the automobile, but of luxury driving itself.”

So what is the electric brand story of Mercedes? Or BMW, Audi or Porsche? Who are they as brands? Why should we buy them? Only those who will provide us with solid answers have a future.

Daniel Langer is the CEO of the leading luxury, lifestyle and consumer brand strategy firm Équité (equitebrands.com), and the professor of luxury strategy and extreme value creation at Pepperdine University in Malibu, California. He consults some of the most iconic luxury brands in the world, is the author of several luxury management books, a frequent media commentator, a global keynote speaker, and holds luxury masterclasses in Europe, the USA, and Asia. Follow @drlanger on Twitter