An economic slowdown and stronger competition from local brands could spell trouble for European carmakers in China.
A dispute between Porsche and its dealers in China over EV sales is prompting European manufacturers to reconsider their strategies for staying competitive in the country. With electric car sales declining amid strong local competition, Chinese media has reported tension between the German automaker and its pressured dealerships.
Porsche’s deliveries in China dropped by 15 percent in 2023 and are continuing to decline this year. This has compelled dealers to offer significant discounts on electric vehicles, often resulting in financial losses, in an effort to meet sales targets.
Porsche Dealers Seek Compensation Amid Sales Struggles in China
According to a report from Jiemian News, three dealers requested compensation from Porsche for their losses in the form of subsidies for new inventory. However, not only did the dealers not receive a favorable response, but Porsche China allegedly stopped sending them new inventory altogether.
Last week, Porsche and its dealers in China issued a statement acknowledging the complex issues they are facing and expressing a commitment to work together to find effective ways to respond to market changes. This situation serves as a warning for other foreign automakers.
With impending retaliatory tariffs and ongoing EV price wars, European carmakers might need to consider diversifying their strategies.
China remains the largest automobile market globally, both in terms of demand and supply. In 2023, automobile registrations in China reached approximately 25.8 million units, an increase of around 11 percent.
However, Europe’s automakers are facing challenges. According to the Wall Street Journal, Porsche’s first-quarter deliveries in China fell by 24% compared to the previous year, while Ferrari’s shipments dropped by 25% year over year in the same period. Mercedes-Benz and BMW also saw a decline in car sales in China in the first quarter compared to last year.
German Automakers Face Growing Competition from Affordable Chinese EVs in Luxury Market
While many luxury brands, including fashion giants like LVMH and Gucci, have seen sales decline due to an economic slowdown, the automotive industry faces an additional challenge.
China’s homegrown EVs are becoming more affordable and are increasingly seen as viable alternatives to the traditionally German-dominated premium segment.
German brands still lead among buyers of cars priced over 350,000 yuan ($48,300), but the market is shifting. In 2020, BMW, Mercedes-Benz, and Audi dominated the market for cars priced above 250,000 yuan ($34,500), holding a 60 percent market share.
However, within three years, this share dropped to 45 percent, with competitors like Tesla, BYD, and Li Auto capturing significant sales.
With domestic brands rapidly introducing new technology, including advanced autonomous features and state-of-the-art battery and motor innovations, how long can brand loyalty sustain German automakers’ dominance in the premium sector?
