Italian supercar maker Lamborghini made it official on Wednesday: It will launch a new SUV in 2018.
The new SUV is expected to follow the general lines of the Lamborghini Urus concept unveiled in 2012. That vehicle was said to have "around 600 horsepower," presumably from a version of the V10 engine used in Lamborghini's Huracán sports car.
The Huracán, like its big brother, the V12-powered Aventador, is the kind of super-sports cars that Lamborghini is best known for -- hyperfast, doorstop-shaped, and eye-catching. Why is Lamborghini, of all companies, messing with an SUV?
Who owns Lamborghini, and why that's important
There are a few answers to that question, but we should start by looking at Lamborghini's corporate parents. The little automaker is owned by German luxury-car giant Audi, which in turn is controlled by the massive Volkswagen Group (NASDAQOTH:VLKAY). Volkswagen is now the world's second-largest automaker; only Toyota sells more cars and makes more money.
Volkswagen made 10.85 billion euros ($11.9 billion) in net profit in 2014 on an operating profit of about 12.7 billion euros and sales of just over 10 million vehicles. Here's the key thing: VW's two big luxury units, Audi and Porsche, accounted for just 16% of those sales, but they generated 62% of the group's operating profit. (Lamborghini's sales and profits are included in Audi's.)
So luxury is big business for the VW Group. And SUVs are a big part of that business, accounting for at least half of Porsche's sales nowadays, and a big part of Audi's.
Porsche's flagship SUV, the Cayenne, shares its frame and underpinnings with the Audi Q7 and the Volkswagen Touareg. The Touareg isn't a big seller, but the Q7 and Cayenne have made a lot of money for VW over the last several years, thanks to a worldwide boom in super-luxury SUV sales.
An all-new Cayenne is expected in 2017. That's where Lamborghini comes in.
Doubling (or tripling) down on the Porsche Cayenne's success
The success of the Cayenne -- and emerging demand (particularly in China and the Middle East) for even more expensive, luxurious, and exclusive SUVs -- has led VW to make a big bet with the architecture being developed for the next-generation Cayenne.
It's going even more upscale.
It's a no-brainer that Audi will build the all-new Q7 on the same architecture, and there will probably be another VW Touareg as well. But we recently learned that another VW Group brand, Britain's Bentley Motors, will launch its first-ever SUV, called the Bentayga (a move that has Bentley rival Rolls-Royce scrambling to respond). And now we know Lamborghini will join the party.
In other words, VW is expanding on the success of the (wildly profitable) Porsche SUV by adding (even more profitable, it hopes) Bentley and Lamborghini SUVs.
So what should we expect from a Lamborghini SUV?
This isn't the first Lamborghini SUV
Lamborghini actually has a history with SUVs. It arguably kicked off the whole super-luxury SUV trend with its wild LM002 in 1986.
The new SUV -- which may or may not retain the Urus name, but is expected to look much like the concept -- will be "produced" at Lamborghini's Italian factory, the company says.
What that almost certainly means is that the frame and basic components will be made at a giant VW plant in Bratislava, Slovakia, and shipped to Lamborghini's factory in Sant'Agata Bolognese for finishing. That VW factory makes the current Q7 and Touareg now, and it manufactures frames and underpinnings for the Cayenne that are shipped to Germany and finished at a Porsche factory.
But management will go to some lengths to ensure the new SUV is a Lamborghini, not just a rebadged Porsche. It's a good bet that the new Lambo SUV will be powered by a variation of the Huracán's naturally aspirated V10, that it will have around 600 horsepower, and that it will feature a sophisticated all-wheel-drive system not unlike that used on upper-level versions of the Cayenne, but also different in some ways.
To make this happen, Audi plans to nearly double the size of the old Lamborghini factory and hire 500 new employees. That's a big deal, but the new SUV is expected to roughly double Lamborghini's sales from the 2,530 units (a record) it sold in 2014.
The upshot: The business case for a Lamborghini SUV is crystal-clear
Somewhere around 2,500 Lamborghini SUVs a year is barely even a drop in the global luxury-SUV bucket. Why would VW bother? Consider four things:
- The new Lamborghini SUV won't cost a great deal of money to develop, because it's based on an existing model.
- Each of those Lamborghini SUVs probably won't cost much more to make than a loaded Cayenne.
- The new Lamborghini's starting price is likely to be (at least) twice the $114,700 starting price of the well-equipped Cayenne Turbo.
- The Porsche Cayenne Turbo is already very profitable for VW.
Long story short, even though the sales numbers may be small, there's a lot of profit in this for Lamborghini, Audi, and the VW Group. And that's why Volkswagen was happy to sign off on a new SUV for Lamborghini.
John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.