Iran War Threatens Luxury Carmakers' Gulf Profits

The ongoing Iran war is disrupting the profits of luxury carmakers from the Middle East, a region that accounts for less than 10% of sales volume but delivers disproportionately high margins due to demand for bespoke models. The conflict has caused significant disruptions in shipping routes, affecting the supply chain of luxury vehicles.

According to Reuters, second-hand Lamborghinis and Ferraris bound for Dubai from Japan are stranded at a port in Sri Lanka because ships are unable to dock in the Middle East due to the closure of the Strait of Hormuz. This key shipping route is out of bounds, causing cargo diversions and congestion at alternative ports.

Luxury carmakers like Bentley, Rolls-Royce, Ferrari, and Maserati are bracing for an impact on their profits as the lucrative Gulf market becomes increasingly inaccessible. The Middle East is a crucial market for high-end automakers due to its demand for bespoke models with features like mother-of-pearl inlays and gold-leaf finishes that fetch higher prices.

Many luxury dealerships in the Gulf closed temporarily after the war broke out on February 28. Ferrari and Stellantis unit Maserati paused deliveries this month, although both say showrooms have since reopened. F1rst Motors in Dubai, which sells top luxury car brands, shut its doors for a few days but has since reopened. Director Chris Bull reported that business is down about 30%, though sales of cars priced at more than $1.4m have stabilized.

Brands including Lamborghini, Bentley, Ferrari, Jaguar Land Rover, and Porsche are watching nervously, hoping for a swift end to the conflict. Volkswagen CEO Oliver Blume noted that Middle East sales are very high margin and will be impacted by the war. Most luxury carmakers do not break out profit margins by region, but Ferrari reported volumes in the Middle East made up 4.6% of overall sales last year.