The luxury car market in China is facing a significant challenge as the country's economic slowdown takes its toll. This shift in consumer behavior has far-reaching implications for global automakers, particularly those in the premium segment.
A Shifting Landscape for Luxury Cars in China
The once-booming demand for foreign luxury cars in China is waning, with consumers opting for more affordable Chinese brands, often with substantial discounts. This trend is a blow to European giants like Porsche, Aston Martin, Mercedes-Benz, and BMW, who have long dominated the upper echelons of the world's largest auto market.
But here's where it gets controversial: the economic slowdown is not the only factor at play. A prolonged property downturn has left consumers cautious about big-ticket purchases, and the wealthy are becoming more discreet about displaying their affluence, according to Paul Gong, UBS head of China Automotive Industry Research.
Many car buyers are also enticed by government incentives, such as a 20,000 yuan trade-in subsidy for electric and plug-in hybrid vehicles. As a result, consumers tend to opt for cheaper, entry-level cars where the discount has a more significant impact, and these are predominantly Chinese-made models, Gong explains.
Claire Yuan, director of corporate ratings for China autos at S&P Global Ratings, confirms that "slowing economic growth is a key driver behind weaker demand for premium cars."
The market share of premium car sales in China, typically priced above 300,000 yuan, more than doubled between 2017 and 2023, reaching about 15% of total sales, according to S&P. However, this trend has now reversed, with the share of premium car sales falling to 14% in 2024 and further to 13% in the first nine months of 2025.
The Rise of Chinese Automakers
While luxury auto sales have slowed, Chinese manufacturers, including electric vehicle giant BYD, have been more aggressive than many Western brands in technological innovation. They frequently introduce new electric and hybrid vehicles at cheaper prices, including premium models, analysts say.
"Their products are more competitive and affordable, even in the premium segment," Yuan notes. "This is why foreign brands are gradually losing momentum."
The China Association of Automobile Manufacturers reports that Chinese brands' share of passenger car sales climbed to almost 70% in the first 11 months of the year. German brands held a 12% share, Japanese brands around 10%, and U.S. brands nearly 6%.
BYD, in particular, has overtaken Volkswagen as the biggest car seller in China in recent years. It is currently the best-selling car brand in China for "new energy vehicles," which include electric vehicles and hybrids, according to the China Passenger Car Association. BYD has cut prices on its electric and plug-in hybrid models by up to 34%, putting pressure on major rivals like Geely and Leapmotor.
The impact on foreign luxury brands is evident: Mercedes-Benz's sales in China fell 27% from a year earlier in the July-September quarter, according to its latest earnings report. BMW and its subsidiary Mini saw a 11.2% drop in sales year-on-year in the first nine months of 2025. Porsche and Aston Martin have also cited weaker demand in China as a challenge. Even Italian luxury carmaker Ferrari reported a 13% year-on-year drop in car shipments to mainland China, Hong Kong, and Taiwan in the January-September period, the only region where sales declined during that time.
Ola Källenius, CEO of Mercedes-Benz, warned investors in late October that "hyper-competition in China is not going away anytime soon." The carmaker described the "market situation in the premium and luxury segment in China" as "tense."
The Impact on Dealerships
The downturn in luxury vehicle sales is hitting dealerships hard. Li Yi, a salesperson at a Beijing Porsche center, said a 2024 Panamera 2.9T, with a mileage of about 20,000 kilometers, was priced at 950,000 yuan, significantly lower than the previous owner's purchase price of about 1.4 million yuan.
"It's mainly due to the sluggish economic situation," Li explained. "This is not just Porsche; Benz, BMW, Bentley, and Rolls-Royce are all facing the same challenge."
At a used-car market in Beijing, four other dealership representatives described a similar situation, with premium cars selling at much lower prices over the past year.
China's monthly auto production in November surpassed a record of 3.5 million units for the first time, but domestic auto sales dropped 4% year-on-year due to fading demand and the halting of some trade-in subsidies in certain regions.
One used car salesperson, who identified herself as Hao, joked, "Who still has money these days? People's pockets are cleaner than their faces." She added that prices have been sliding for two years, and she now offers bigger discounts to attract buyers.
"Now they think hard before they spend," she said.
This shift in the luxury car market in China raises questions about the future of global automakers in this competitive landscape. What do you think? Will foreign luxury brands be able to adapt and regain their foothold in China, or is this the beginning of a new era dominated by Chinese automakers?
