It's old news now, but it's still kind of shocking: Bentley Motors, that icon of proper (and seriously posh) British motorcar-ness, is gearing up to build its first-ever SUV.
Such a thing would have been unthinkable not long ago, when Bentley was the (slightly) sportier sibling brand of venerable big-expensive-car-maker Rolls-Royce. But times have changed. Rolls and Bentley have parted ways, and Bentley came under the wing of Volkswagen Group (NASDAQOTH:VLKAY) back in 2003.
And right now, Volkswagen Group is investing in luxury SUVs in a big, big way.
The Bentayga, an all-new Bentley SUV
Officially, we don't know that much about the new Bentley SUV. We know that it will be called the Bentayga, after Roque Bentayga, a rugged, rocky peak on Spain's Grand Canary Island. We also know that Bentley plans to unveil it later this year, and that it will officially go on sale in 2016.
Bentley CEO Wolfgang Dürheimer promised that the new Bentayga will "combine the best automotive luxury with outstanding performance to take the Bentley experience to new environments." He has said that the company will build 3,600 Bentaygas in the first year of production, and he expects that demand will greatly exceed supply.
So that's what we know -- officially. But unofficially, we can be pretty sure that the new Bentley will be a mechanical sibling to several other SUVs built by the Volkswagen Group, including the Porsche Cayenne and Audi Q7. Both of those will be all-new for the 2017 model year, built on a brand-new architecture.
Today, the Cayenne and Q7 (and their third sibling, the VW Touareg) are built together in a factory in Slovakia, but Cayennes are sent partly assembled to Porsche's factory in Germany for final finishing. It's a safe bet that the same factory will build partly assembled Bentaygas and ship them to Bentley Motors' plant in the U.K., where they'll be trimmed and finished to the high standards that Bentley customers expect.
So that's the "what." But why does VW Group want to build a Bentley SUV?
The case for a Bentley SUV starts with Porsche
To answer that question, we need to understand a little bit about Bentley's corporate parent.
VW Group owns a dozen vehicle brands, ranging from the entry-level Czech small-car brand Škoda to the MAN heavy-truck unit to the ultra-high-end Bugatti sports-car brand. But while most of its sales come from mass-market brands (particularly the namesake Volkswagen brand), a disproportionate share of VW Group's profits in recent times have come from luxury vehicles.
Audi, Porsche, and Bentley together accounted for just 16% of the VW Group's total vehicle sales in 2014, but they brought in 63% of the Group's total operating profits. Luxury is a big business for the VW Group, and SUVs are a big (and growing) part. Audi's success with SUVs is visible to most Americans, but what you might not know is that at least half of Porsche's global sales (likely more -- the company is vague about this) come from its two SUVs, the Cayenne and the Macan.
The current Cayenne shares its architecture with the Audi Q7 and the VW Touareg. The three are built together in a VW plant in Slovakia -- but only to an extent: The Cayennes are sent, half-finished, to Porsche's factory in Germany for final finishing. That allows Porsche to represent the Cayenne as a true made-(partly)-in-Germany Porsche and control the quality of its final fit and finish, while minimizing production costs (and thus maximizing profit margins).
What does all this have to do with the Bentley SUV? Everything. In a nutshell, the Cayenne has been so successful (and so profitable) for VW that it's about to expand the idea even further upmarket.
Lamborghini will get a sibling of the Bentley SUV, too
Bentley isn't the only super-luxury brand in the VW Group to be getting a new SUV. Italian supercar maker Lamborghini (officially owned by VW subsidiary Audi) is also getting its first-ever SUV. Again, like the Cayenne, it's a good bet that the bones of the Lamborghini SUV will be built on that same assembly line in Slovakia, with the final finishing done in Italy.
The business case for both is clear in context. VW's success with luxury SUVs makes this an experiment worth trying. And it's not the only auto giant going in this direction: Bentley's old parent Rolls-Royce, now under the wing of BMW (NASDAQOTH:BAMXF), is also developing a super-high-end SUV -- and the BMW brand, like its mainstream luxury-car rivals, is bringing more SUVs and SUV-like vehicles to market all the time.
Long story short, the luxury-SUV boom is still going in a big way. How long will it last? We'll find out.
John Rosevear has no position in any stocks mentioned. The Motley Fool recommends BMW. 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.
More from The Motley Fool
No Holiday Reprieve for 2 of the Biggest Retail Train Wrecks
Most department store chains have posted surprisingly strong results for the 2017 holiday season. However, these perennial laggards couldn't capitalize on the uptick in consumer spending.
3 Stocks That Could Put Amazon's Returns to Shame
These three tickers could be better bets than Amazon for new investors right now.
Will This iPhone Supplier’s Terrific Run Continue in 2018?
Lumentum's growing momentum in 3D sensing could help it overcome the weakness in the telecom segment.