Premium compact SUVs lose momentum as BMW, Jaguar Land Rover, Mercedes aim higher

The success of cars such as the Volvo XC40, BMW X1 and Mercedes-Benz GLA had pushed compact SUVs to become the biggest premium vehicle segment in Europe.

Through April this year, however, sales in the segment fell by a fifth, causing it to lose the No. 1 spot to premium midsize SUVs.

Given that the compact SUV is in the so-called “sweet spot” for consumers in Europe, what happened?

All models with the exception of the full-electric Mercedes EQA and EQB posted sales declines in the first four months, resulting in an overall sales dip of 45,000 units compared with the same period last year, according to figures from Dataforce.

Hardest hit in terms of numbers was the segment-leading XC40, which lost almost 13,000 sales.

As measured by percentage decline, the worst affected model was the Jaguar E-Pace, down 61 percent to just 1,625 sales in the region (see chart, below).

Also experiencing huge slides were the Mercedes GLB (-50 percent) and Range Rover Evoque (-46 percent).

The decline could be the start of something significant, Benjamin Kibies, senior automotive analyst at Dataforce, said.

“Considering that the midsize segment and higher [segments] are running better for both SUVs and passenger cars, this could be the first sign of premium manufacturers moving up the market,” he told Automotive News Europe.

Premium automakers such as Mercedes and Jaguar Land Rover been saying for the last couple of years they wanted to focus on higher margin models and move the focus away from the entry segments.

Mercedes, for example, said it wants to focus on “fewer and more upscale portfolio positions” in the entry compact segment, which includes the GLA and GLB. The automaker will reduce its offering to four models in the segment from seven. Its share of the segment will fall by 25 percent by 2026 compared with 2019, Mercedes said in May.

Chief Financial Officer Harald Wilhelm told analysts he was “not completely happy with the margin” in the segment in 2019, the last normal year before COVID-19 upended the automotive market.

Like all others, the segment has been affected by the shortage of microchips.

Of the automakers competing in the segment, only Audi and Lexus are owned by bigger groups (Volkswagen Group and Toyota Motor, respectively).

In their cases, it makes more sense to prioritize vehicles in this segment to receive precious semiconductors over lower margin mainstream brands.

It’s likely not a coincidence that the Audi Q2, Q3 and Q3 Sportback, and the Lexus UX saw the smallest sales reductions in the segment during the first four months.

On the other hand, this is a comparatively low-margin segment for brands such as Jaguar Land Rover, Mercedes and BMW, which have been open about saving chips for larger, more profitable models.

JLR, for example, would focus on building “the most valuable units” until chip supply increases, Adrian Mardell, JLR chief financial officer, said last year.

BMW has reduced production of the X1, X2 and Mini Countryman, but the drops are not as severe as they are for the compact 1 Series and 2 Series, and midsize 3 Series, which all saw sales declines of 30 percent or more in the first four months. That meant the X1 was actually BMW’s best-selling model at 30,621 through April, according to Dataforce.

Starting in November, BMW will replace the X1 with a new model that will include an electric version, the iX1, for the first time.

Aside from the two electric Mercedes models, the battery-driven version of the XC40 and the Lexus UX 300e, players in the sector have focused their initial electrification efforts on plug-in hybrids.

Volvo leads sales of that drivetrain within the segment with the plug-in hybrid version of the XC40 at 12,563, followed by the X1, GLA and Mini Countryman (see table, below).

Of the models in the segment’s top 10, only the Audi Q2 is not offered with a plug-in hybrid variant.

Overall, 23 percent of the segment’s sales were plug-in hybrids, compared with an 8.6 percent total for the entire European market, according to Dataforce.

BMW’s focus will shift more toward full-electric models, first with the iX1. In 2023 the new Mini Countryman will come with an electric version and an EV version of the forthcoming BMW X2 is also due next year.

Underpinning the range will be BMW’s new FAAR compact platform that allows for multiple drivetrains, including electric.

The eventual easing of the chip crisis will likely boost sales in the segment, as will the renewal of the BMW range. However, whether premium automakers will stay true to their pledge to restrict sales to higher value models in the segment in the future will be proved only when the overall market returns to normality.