Hyper-competition in China is not going away anytime soon
In the world's largest automobile market, a quiet but consequential reckoning is underway: China's wealthy are retreating from conspicuous consumption, and the foreign brands that once defined aspiration there are losing ground not merely to economic headwinds, but to a homegrown industry that has grown faster, cheaper, and more innovative than its Western rivals anticipated. The premium car's long reign as a symbol of arrival in China is giving way to something more pragmatic — and the reverberations will be felt in boardrooms from Stuttgart to Maranello for years to come.
- A years-long property downturn and a cultural reluctance to flaunt wealth have quietly eroded Chinese appetite for luxury cars, with premium market share sliding from 15% to 13% in just two years.
- BYD and other Chinese manufacturers have seized the moment with ruthless precision — slashing electric vehicle prices by up to 34% and capturing nearly 70% of the passenger car market, leaving European brands with shrinking footholds.
- Mercedes-Benz sales in China collapsed 27% in a single quarter, while BMW, Porsche, Aston Martin, and Ferrari all reported significant declines — with Ferrari's Chinese region the only market globally where it fell.
- Government subsidies of 20,000 yuan for electric and hybrid vehicles are accelerating the shift toward affordable Chinese-made models, further disadvantaging foreign brands at the entry and mid-premium levels.
- Mercedes-Benz's own CEO has warned investors that 'hyper-competition in China is not going away anytime soon,' signalling that European automakers are now managing decline rather than plotting recovery.
China's luxury car market is contracting, and the consequences are being felt far beyond Shanghai showrooms. A prolonged property downturn has made Chinese consumers cautious, but something more cultural is also at play — the wealthy have grown reluctant to display their prosperity publicly. Combined with economic uncertainty, that shift has hollowed out demand for the conspicuous consumption that luxury vehicles represent.
The numbers are unambiguous. Premium vehicles — those priced above 300,000 yuan — more than doubled their market share between 2017 and 2023, reaching roughly 15 percent. By the first nine months of 2025, that figure had slipped to 13 percent. Small in percentage terms, significant in a market of China's scale.
European brands have absorbed the sharpest blows. Mercedes-Benz sales fell 27 percent in the third quarter year-on-year. BMW dropped 11.2 percent across the first nine months of 2025. Porsche, Aston Martin, and Ferrari all flagged weakness, with Ferrari's mainland China, Hong Kong, and Taiwan region the only market globally where the Italian marque saw shipments decline.
The real disruption, however, is not coming from rival European or Japanese manufacturers — it is coming from within China. BYD has overtaken Volkswagen as the country's largest car seller, slashing prices on electric and plug-in hybrid models by up to 34 percent and making price competition nearly impossible for foreign brands. Chinese manufacturers now hold almost 70 percent of the passenger car market. German brands hold 12 percent, Japanese around 10, and American brands nearly 6.
Analysts at S&P Global Ratings argue the deeper issue is not just slowing growth but the accelerating competitiveness of Chinese carmakers, who are rolling out new electric and hybrid models constantly — often undercutting foreign brands even in the premium segment. Mercedes-Benz CEO Ola Källenius put it plainly to investors: hyper-competition in China is not going away. For European luxury automakers, the question has shifted from how to reclaim lost ground to whether they can hold what little remains.
China's luxury car market is contracting, and the shift is reshaping the global automotive landscape in ways that will ripple far beyond Shanghai showrooms. The wealthy are buying less. The merely affluent are buying cheaper. And the foreign brands that once owned the upper reaches of the world's largest auto market are watching their grip slip.
A property downturn that has persisted for years has left Chinese consumers cautious about major purchases. But something deeper is also at work. The well-to-do in China have grown reluctant to flaunt their wealth publicly, according to Paul Gong, who heads China automotive research at UBS. That cultural shift, combined with economic uncertainty, has drained the appetite for the kind of conspicuous consumption that luxury cars represent. Meanwhile, the government has sweetened the incentive to buy electric and plug-in hybrid vehicles with a 20,000 yuan subsidy—roughly $4,250 Australian dollars. That money matters most to buyers shopping at the entry level, where Chinese manufacturers dominate.
The numbers tell a stark story. Premium vehicles, typically priced above 300,000 yuan ($63,690), once surged in popularity. Between 2017 and 2023, their share of total sales more than doubled to about 15 percent. That growth has now reversed. By 2024, premium cars accounted for 14 percent of sales. In the first nine months of 2025, that figure fell to 13 percent. It is a small shift in percentage terms but a significant one in absolute volume, given China's massive auto market.
European manufacturers have felt the impact acutely. Mercedes-Benz saw sales in China plummet 27 percent in the third quarter compared to the same period a year earlier. BMW and its subsidiary Mini brand dropped 11.2 percent in the first nine months of 2025. Porsche and Aston Martin have both flagged weakness in China. Ferrari reported a 13 percent year-on-year decline in shipments to mainland China, Hong Kong, and Taiwan in the first nine months of the year—the only region where the Italian luxury maker saw sales fall during that period.
The real competition, though, is not coming from other European or Japanese brands. It is coming from Chinese manufacturers, particularly BYD, which has already overtaken Volkswagen as China's largest car seller. BYD has become the best-selling brand for new energy vehicles—a category that includes both pure electric cars and plug-in hybrids. The company has slashed prices on its electric and plug-in hybrid models by up to 34 percent, undercutting rivals like Geely and Leapmotor and making it nearly impossible for foreign brands to compete on price. Chinese manufacturers now control almost 70 percent of China's passenger car market. German brands hold 12 percent, Japanese brands around 10 percent, and American brands nearly 6 percent.
Claire Yuan, director of corporate ratings for China autos at S&P Global Ratings, frames the challenge plainly: slowing economic growth is the headline driver, but the deeper issue is that Chinese carmakers have become more aggressive and more innovative than Western competitors. They roll out new electric vehicles and hybrids constantly, often at prices that undercut foreign brands even in the premium segment. "Their products are more competitive and more affordable even in the premium segment," Yuan said. "That's why these foreign brands are gradually losing momentum."
Mercedes-Benz CEO Ola Källenius acknowledged the severity of the situation in late October when he told investors that "hyper-competition in China is not going away anytime soon." He is right. China's auto production hit a record 3.5 million units in November, yet domestic auto sales dropped 4 percent year-on-year as demand softened and some regional trade-in subsidies were withdrawn. The market is not shrinking overall—it is shifting. Wealth is still being spent on cars, but on different cars, made by different companies, for different reasons. For European luxury automakers, the question is no longer whether they can regain lost ground in China, but whether they can stabilize what remains.
Citas Notables
Their products are more competitive and more affordable even in the premium segment. That's why these foreign brands are gradually losing momentum.— Claire Yuan, S&P Global Ratings
Hyper-competition in China is not going away anytime soon.— Ola Källenius, CEO of Mercedes-Benz
La Conversación del Hearth Otra perspectiva de la historia
Why does it matter that wealthy Chinese consumers are suddenly shy about displaying their wealth?
Because luxury cars are not really about transportation—they are about signal. A Mercedes or a Porsche tells the world something about the owner. If that signal becomes socially risky or culturally fraught, the product loses its core appeal, regardless of how well it performs.
But couldn't European brands just lower their prices to compete?
They could, but then they stop being luxury brands. BYD is not trying to be Mercedes. It is building something new—premium features at accessible prices. That is a different market position entirely, and it is one the European makers cannot easily copy without destroying their own brand identity.
Is this just about China, or does it signal something broader?
China is the test case. If Chinese manufacturers can dominate at home and then export that technology and price advantage globally, the entire automotive hierarchy shifts. Right now, it is mostly a China story. But watch what happens in the next five years.
What happens to the dealerships?
They are caught in the middle. Production is at record levels, but sales are falling. That means inventory piles up, margins compress, and the people selling cars feel the squeeze first.
Can Mercedes or BMW survive this?
They will survive. But they will be smaller in China, and China is the world's largest auto market. That is not a small thing.