close
close

European luxury carmakers are being crushed in China

European luxury carmakers are being crushed in China

BYD Yangwang U8

BYD’s $150,000 Yangwang U8 has high-tech features, including an on-board drone.Daniel Pier/NurPhoto via Getty Images

  • European luxury carmakers once dominated China, but are now under intense pressure.

  • BMW, Mercedes-Benz and Porsche all reported falling sales in the world’s biggest auto market.

  • They face increasing competition from Chinese automakers offering cheaper high-tech premium vehicles.

The days of European automakers dominating China’s luxury vehicle market are over.

of Germany BMW and Mercedes-Benz have suffered declining sales in the world’s biggest auto market in recent months amid growing pressure from a wave of Chinese electric vehicle upstarts.

BMW reported a one-third drop in sales in China in the most recent quarter, while Mercedes new car deliveries fell 10 percent in the first nine months of the year. Its the high-end S-Class range was particularly affected as some consumers cut back on spending amid a weak economy.

Aston Martin, a British luxury brand famous for its association with James Bond, said sales in China had more than halved this year compared to third-quarter earnings.

Meanwhile, Volkswagen-owned Porsche said it would shrink its Chinese dealer network amid falling profits and a 29 percent drop in sales in China in the nine months to September 30.

The German company has seen demand for its luxury vehicles stagnate, with sales of the $100,000 electric Taycan down 47% globally over the same period.

Porsche Taycan 2023.Porsche Taycan 2023.

Porsche is having a harder time selling the Taycan.Porsche

Rolls-Roycethe BMW-owned British brand has also faced weaker sales in China this year. Its luxury car marker was going through “tougher times,” CEO Chris Brownridge told Bloomberg in September.

The Chinese market has become increasingly difficult for European brands.

Volkswagen was dethroned by BYD as China’s largest automaker last year, and the share of China’s auto market held by German automakers has fallen from about a quarter before the pandemic to less than 15 percent, according to Bloomberg data.

“China is an incredible challenge, not just for Porsche,” finance chief Lutz Meschke said in comments reported by Reuters. “Going forward, we can no longer assume that China will return to where it was for European players.”

High-tech competition

European luxury automakers are being squeezed by their Chinese rivals.

Many provide vehicles full of new features and smart software of them have growing models in China’s high-end car market and are

Last year, Tesla rival BYD launched the Yangwang U8 SUV last year. The $150,000 hybrid has a motor on each wheel that allows it to move like a crab.

The U8 also comes with a drone on board, and BYD says it can floats on water for up to 30 minutes.

Other Chinese automakers have gone to even greater lengths to stand out in the country’s hot car market, with Zeekr showing off the spacious and luxurious interior of its MIX MPV by having an executive eat hot pot inside it.

Zeekr MixZeekr Mix

Zeekr’s eye-catching MIX minivan.VCG/VCG via Getty Images

The competitiveness of the Chinese market means that consumers don’t have to spend a fortune to get luxury vehicles.

The SU7, an electric sedan built by Chinese smartphone maker Xiaomi, is packed with high-tech features including a 16.1-inch infotainment screen and voice remote control that allows drivers to control home appliances in the car.

But it’s also relatively affordable, with the base version starting at 215,900 yuan ($30,300) and the top-of-the-line SU7 Max priced at 299,900 yuan ($42,100). Xiaomi just has unveiled a high-performance version of the SU7 which costs 814,900 yuan ($114,000).

Steve Dyer, managing director at AlixPartners, a London-based consulting firm, told Business Insider that Chinese manufacturers are invading the premium market from the bottom up, targeting the lower segment before gradually rolling out more expensive vehicles aimed at less price sensitive. customers.

“Chinese companies are doing what Korean companies have done to gain market share outside of Korea, and that is to offer a lot of feature content at a good price,” he said.

Dyer said Chinese buyers often focused on luxurious interiors as well as smart technology such as advanced driver assistance systems – an area where Chinese automakers excel and their European rivals struggled to keep up.

“They’ve been behind in the sense that they’re applying an automotive product development mindset in a fast-moving, fast-changing technology space,” Dyer said.

A study by AlixPartners found that Chinese automakers released 40 over-the-air software updates between March 2023 and February this year, compared to just two from legacy automakers.

“It’s a typical software mentality. You’re willing to release a product quickly, even if it may need fixing later, because you know you can fix it,” said Dyer.

Hard to give up

Despite a challenging environment, Western premium automakers cannot afford to give up on China. It remains Volkswagen’s second-biggest global market after Western Europe, and Mercedes sold about a third of its cars there last year.

Xiaomi SU7Xiaomi SU7

The Xiaomi SU7 offers Chinese buyers luxury at a competitive price.JADE GAO/Getty Images

However, they will likely face a bumpy road as they try to recover.

Because the premium vehicle market is less price-sensitive, Dyer said more Chinese automakers will move into it to diversify away from China’s highly competitive mass market.

In addition to increased competition, European automakers face a geopolitical headache.

Tim Urquhart, principal automotive analyst at S&P Global Mobility, told BI European Union tariffs on Chinese car manufacturers meant that Beijing could impose tariffs on European car imports in retaliation.

“They could be facing a perfect storm if these tariffs are imposed as well,” he said.

Even if that happens, Urquhart said the sheer size of the Chinese market means major Western automakers are unlikely to abandon it anytime soon. “They can’t afford to do a large-scale pullback and pull out of their current position, especially since they’ve invested so much there.”

Read the original article on Business Insider