by
Indulge Newsroom
|
Jul 19, 2025
Share this article:
Technology
The global luxury car industry is shifting gears, and fast. According to a recent report by McKinsey & Company, the market for luxury vehicles is set for robust growth through 2031, sharply outpacing the mass automotive market. Annual growth rates are projected between 8% and 14%, with yearly volumes expected to exceed three million units, more than double the 2021 figures. By contrast, cars priced under $80,000 are expected to grow by just 1% annually. This is not just a story of higher sales. The industry is undergoing a sweeping transformation in how luxury vehicles are powered, sold, and experienced.
Electrification and SUVs Redefine the Market
The McKinsey report projects battery-electric vehicles (BEVs) to dominate across all luxury price bands by 2031. In the $150,000 to $500,000 segment, 75% to 85% of models sold are expected to be electric, while even the ultra-luxury $500,000 and above segment will see 35% to 40% EV adoption, marking a significant shift for a category historically dominated by bespoke combustion engines.
SUVs, once considered purely functional, are now at the heart of luxury strategy. The SUV share in luxury sales is forecasted to rise from less than 25% in 2021 to 40% by 2031. In the ultra-luxury bracket, half of all SUVs sold by 2031 are expected to be electric, up from less than 15% in 2021. Manufacturers have already announced over 20 new EV models in the $150,000 to $500,000 range, including at least ten new BEV SUVs planned before 2027.
China Leads the Global Luxury Surge
China is set to become the world’s most dynamic luxury car market. The McKinsey report forecasts a 14% annual growth rate, increasing China’s share of global luxury car sales from 24% in 2021 to 35% by 2031. This expansion mirrors the country’s growing population of ultra-high-net-worth individuals, projected to cross 130,000 by 2026, a more than 250% increase since 2000.
Chinese buyers are also redefining luxury expectations. With 84% valuing high levels of customization and 80% seeking seamless, omnichannel purchase experiences, demand in China is setting new standards. Features like advanced connectivity, fast charging, and personalized design are becoming essentials rather than luxuries.
From Dealerships to Direct-to-Consumer
Luxury brands are moving towards direct-to-consumer (DTC) models in pursuit of tighter control over retail experiences and higher margins. According to McKinsey, this shift could unlock a five-percentage-point margin advantage for manufacturers.
The change aligns with rising digital preferences. Half of all premium car buyers globally now prefer to purchase online, and 60% are interested in contactless services. The future of luxury automotive retail may be as much virtual as it is physical.
Hyper-Profitability Defines the Luxury Segment
Between 2016 and 2021, luxury brands in the $150,000 to $500,000 category saw EBIT margins rise from below 20% to an average of 38%, according to McKinsey. The luxury EV segment is expected to sustain 21% to 25% profitability through 2031, debunking earlier concerns about electric vehicle margins.
With ultra-wealthy populations growing steadily in China, the Middle East, and globally, luxury automakers are well-positioned to maintain their margin leadership.
The Competitive Edge: Innovation, Differentiation, and Sustainability
Competition is intensifying at the top end of the market. More than ten new entrants are preparing to enter the $1 million and above category, especially in the electric space. According to McKinsey, affluent buyers today expect luxury brands to lead in sustainability, software innovation, and customer experience, driving a new wave of differentiation.
The Outlook: As highlighted in McKinsey’s report, the next decade will see luxury carmakers navigating an industry shaped by electrification, rising SUV demand, booming Chinese consumption, digital-first retail models, and exceptional profitability. The stakes are high, and so is the potential for those who adapt.
Share this article:
