In Depth: How BMW, Audi and Mercedes Ended Up Also-Rans in China

BMW and other German luxury brands Mercedes-Benz and Audi once held significant sway in the Chinese luxury car market, where the BMW badge alone was enough to sway buyers away from less expensive local options. However, emerging domestic competitors like BYD have begun to challenge these foreign brands by bringing cheaper yet feature-rich models to the market[para. 1][para. 2][para. 3][para. 4][para. 5]. Although these German brands attempted to maintain their competitive edge by offering substantial discounts—as high as 30% for Audi—they experienced a decline in sales, with Mercedes-Benz seeing a 9% drop in deliveries to China in the first half of 2024, BMW down by 4.3%, and Audi by 2%[para. 6][para. 7].

For years, BMW, Mercedes, and Audi dominated China's luxury car market. However, their inability to capture the rising demand for electric vehicles (EVs) contributed to their declining influence. These German carmakers were slow to adapt to Chinese market trends, allowing local companies to gain a foothold by setting competitively priced models equipped with similar features. Chinese brands' share of the market rose by 9.3 percentage points to a record 64.6% in the first ten months of 2024, while the German brands saw their shares plummet to a low of 14.9%[para. 8][para. 9][para. 10].

The rapid evolution of the Chinese car market towards new energy vehicles (NEVs), including pure electric, plug-in hybrid, and fuel cell vehicles, caught these foreign brands unprepared. By 2021, NEVs made up more than 10% of new car sales. Domestic alternatives like the Li Auto One and Nio ES6, priced comparably to foreign luxury models, were seeing substantial success[para. 11][para. 12]. For instance, Li Auto sold over 376,000 vehicles in 2023, far surpassing BMW and Audi's electric vehicle sales numbers in China[para. 14]. S&P Global Mobility forecasts that NEVs will account for 46% of Chinese passenger vehicle sales in 2024, up from 36% the previous year[para. 15].

Not only are Chinese consumers gravitating toward EVs, but they are also prioritizing enhanced features at lower prices, a shift global brands have been slow to grasp. Domestic startup Zhejiang Leapmotor, with its C10 model priced significantly lower than foreign equivalents like Mercedes-Benz’s E-Class, exemplifies this trend. JATO Dynamics and Nomura analysts note that luxury in China is evolving toward smart driving and interaction features, areas where domestic companies like Nio and XPeng have taken the lead[para. 16][para. 17][para. 18][para. 19][para. 20][para. 21].

In response, foreign automakers are adjusting their strategies and investing in local R&D. Companies like Nio exploit competitive advantages, such as the 1-billion-yuan subsidy program to attract traditional car owners, along with the launch of models like Huawei and BAIC's Stelato S9 that rival high-end foreign offerings in price range[para. 22][para. 23][para. 24]. BMW is adapting by cutting sales targets and focusing on quality and R&D investment, like the 20 billion yuan upgrade for production starting in 2026. They have established multiple R&D centers in China, focusing on autonomous driving technology. Similarly, Audi and Mercedes-Benz are adjusting their strategies to develop new technologies and plug-in hybrid models locally. They leverage Chinese-developed technologies for use in global markets[para. 25][para. 26][para. 27][para. 28][para. 29].

Meanwhile, local competitors like BYD and Denza remain confident and well-positioned against international brands, underscoring the challenging and dynamic environment in which foreign carmakers must now contend[para. 31].