China's Luxury Car Market Experiences Significant Decline Amid Economic Slowdown and Rise of Domestic Brands

Introduction: A Shifting Automotive Landscape in China

China's luxury car market is undergoing a significant transformation, marked by a notable decline in demand for foreign premium vehicles. This downturn is primarily attributed to a confluence of factors, including a slowing national economy, a prolonged property market slump, and a pronounced shift in consumer preference towards increasingly competitive and technologically advanced domestic brands. European automakers, who have long dominated the high-end segment in the world's largest auto market, are now facing substantial challenges, with several reporting double-digit sales decreases.

Economic Headwinds and Evolving Consumer Behavior

The current economic climate in China is a primary driver behind the waning appetite for foreign luxury cars. A prolonged downturn in the property sector has dampened consumer confidence, leading to a reduced willingness for large, high-priced purchases. Furthermore, affluent consumers are reportedly becoming more discreet about publicly displaying their wealth, a sentiment echoed by Paul Gong, UBS head of China Automotive Industry Research. Government initiatives, such as a 20,000 yuan ($2,830) trade-in subsidy for electric and plug-in hybrid vehicles, have also steered buyers towards more affordable, often domestically produced, entry-level models.

According to S&P Global Ratings, the market share of premium car sales in China, typically priced above 300,000 yuan ($42,400), which had more than doubled between 2017 and 2023 to about 15% of total sales, is now reversing. This share fell to 14% in 2024 and further to 13% in the first nine months of 2025.

The Ascent of Domestic Contenders

Chinese domestic automakers are rapidly gaining ground, redefining the concept of luxury with their competitively priced, feature-rich electric vehicles (EVs) and hybrids. Brands like BYD, Nio, and Xiaomi are offering advanced technology, sophisticated interiors, and aggressive pricing, appealing to a new generation of tech-savvy buyers. This innovation has allowed Chinese brands to capture a significant portion of the market, accounting for nearly 70% of passenger vehicle sales in the first 11 months of the year. In contrast, German brands held 12%, Japanese brands around 10%, and U.S. brands nearly 6%. BYD has notably surpassed Volkswagen to become China's top car seller, particularly in the 'new energy vehicles' category.

European Automakers Face Mounting Pressure

The shift in the Chinese market has had a profound impact on established European luxury car manufacturers:

• Porsche reported a 28% drop in China sales in 2024, with an even sharper decline of 42% in the first quarter of 2025.
• Mercedes-Benz saw a 27% drop in unit sales in China during the third quarter of 2025, a 7% decrease in 2024, and a 10% fall in the first quarter of 2025. CEO Ola Källenius acknowledged the 'hyper-competition' in the Chinese market, stating that the 'market situation in the premium and luxury segment in China remained tense'.
• BMW, including its Mini brand, experienced an 11.2% fall in sales in the first nine months of 2025, a 13.4% drop in 2024, and a 17.2% decline in the first quarter of 2025.
• Ferrari also noted a 13% decrease in shipments to mainland China, Hong Kong, and Taiwan during the first nine months of 2025, making it the only region where the Italian luxury carmaker's sales declined.

The downturn has also led to falling prices in the used luxury car market, reflecting broader consumer caution.

Conclusion: A New Era for China's Luxury Automotive Sector

The decline in foreign luxury car sales in China signals a significant recalibration of the automotive market. Economic pressures, coupled with the rapid innovation and aggressive pricing strategies of domestic brands, are reshaping consumer expectations and purchasing habits. European automakers are now compelled to adapt to this evolving landscape, where 'luxury' is increasingly defined by technological prowess, affordability, and local relevance, rather than solely by traditional brand heritage. The intense competition is expected to continue, forcing both international and local players to innovate and adjust their strategies to thrive in this dynamic market.