Chinese vehicle manufacturers, led by BYD, have opened a new front in the fight for automotive industry dominance by redefining “Made in China” as a global symbol of luxury for the era of electric vehicles. After hitting the European market with cheap affordable models, China now intends to attack German jewels such as Porsche, Mercedes or BMW.
European luxury car brands felt safe from the invasion of Chinese electric vehicles. Porsche or Mercedes models imply status and tradition. But its dominance in the premium has begun to falter due to the new strategy of the Chinese industry, which seeks to conquer a market of 1.2 trillion dollars. The clearest sign of his impact came with Mercedes. The company posted the lowest business profitability since 2021. Porsche also reported cost cuts and will review its model range, after a drop in demand in China caused profit to plummet.
“We do not take competition lightly“, explained Mercedes CFO Harald Wilhelm on Friday. And he acknowledged that “the pressure is not going to disappear tomorrow,” when asked if Chinese manufacturers will be able to withstand the low prices of their luxury vehicles. In the showroom of this month’s Paris automobile, FAW Group’s Hongqi and BYD’s Yangwang showed limousines and SUVs that aim to compete for European customers. With the latest in digital technology along with creature comforts like leather dashboards and champagne coolers, all for a competitive price, they threaten European manufacturers in a segment that is essential to the profits of companies like Mercedes, Porsche and even Rolls-Royce. Royce.
Nio, known for battery swapping to help ease range anxiety, has opened luxury showrooms in cities including Berlin, Oslo and Amsterdam to showcase models like its sports car EL8 of 95,000 euros. Polestar, owned by Geely Automobile Holdings, has started deliveries in some European markets and plans to enter France, Hungary and Poland in 2025. BYD, whose Yangwang brand sells a luxury SUV that can float on water, is closing deals with dealers local.
Check the Porsche Taycan
The level of technological sophistication is evident in Xiaomi. The company, known as the Apple of China, has committed to investing $10 billion in its entry into the automotive market. It launched the SU7 in March, aiming to challenge vehicles like the Porsche Taycan. The elegant Chinese sports car has already caused a stir in the automotive industry.
“It’s fantastic,” explained Ford Motor CEO Jim Farley after importing an SU7 for testing. “I’ve been driving it for six months and I don’t want to give it up,” he said during a podcast released last week.
Xiaomi has hinted at its European automotive ambitions by unveiling the SU7 during the Paris Olympics and setting up a garage at Germany’s famous Nürburgring racing circuit. The company’s billionaire founder, Lei Jun, has said he plans to make the vehicle available to everyone, without providing a time frame.
China, old fort
For years, Chinese consumers bought more Mercedes S-Class sedans than anywhere else and the country was one of the few markets where the brand’s ultra-luxury Maybach line was in demand. A drop in those lucrative sales became evident in the third quarter, when the company’s key profitability indicator fell to 4.7%below its minimum target of 8%. A quick recovery is not expected.
“We are taking a cautious view on market developments in the future,” said Wilhelm, Mercedes’ chief financial officer. “We will redouble all efforts to continue increasing efficiency and improving costs across the company.”
While Europe once had control of the luxury car market, the launch of the Tesla Model S in 2012 challenged it by shifting consumer perceptions of automotive excellence toward digital features. Brands like BYD and Nio are following that strategy by touting their leadership in software and battery technology.. They have the momentum of their local market, where their share in the premium segment has practically tripled in the last two years, according to China Fortune Securities.
“Chinese luxury brands are very confident that, with some time, investment and patience, they will see a great opportunity in Europe,” explains Tu Le, founder of the consulting firm Sino Auto Insights, to Bloomberg. “The Chinese are trying to convince Europeans that their vehicles can be just as luxurious and high-performing.”
A highly profitable segment
While it will be a challenge to overcome the appeal and tradition of Porsche or Mercedes, the challenge for Chinese companies is clear. Luxury vehicles generate some of the highest profit margins in the industry and customers tend to be more loyal and make repeat purchases. The segment is expected to outperform the mass market, offering a rare path to sustained expansion, according to consulting firm McKinsey.
To win over Europeans, BYD exhibited its Yangwang U8 in Paris, a square SUV worth 1.1 million yuan (143,000 euros). This all-terrain vehicle has motors in each wheel that allow it to move laterally like a crab. While Mercedes’ electric G-Class has many similar features, the German model costs about twice as much.
Even the mobile manufacturer Huawei wants its share of the European pie. In alliance with Seres Group, they have launched the luxury electric car brand Aito. The Aito 9 is an SUV equipped with a drop-down movie screen and reclining leather seats, but it costs about half as much as the German models.
A serious attack
Chery Automobile and SAIC’s MG participated in this year’s Goodwood Festival of Speed in the United Kingdom, rubbing shoulders with brands such as Aston Martin, Lamborghini and Ferrari. Chinese manufacturers are clear that they have to gain presence at exclusive events. BYD’s Yangwang brand also participated in the Bicester Heritage event which pays tribute to classic British limousines and sports cars.
To support your plans, BYD has established partnerships with luxury dealers such as Louwman Group in the Netherlands, which typically sells Mercedes and Lexus models.. In the UK, it has partnered with Inchcape, a company that also sells Land Rover, Jaguar and BMW, as well as Vertu Motors, which also offers Mercedes cars.
Toyota’s Lexus has shown that Europe’s premium segment is not completely closed. Although initially met with skepticism, the Japanese brand has carved out a niche for itself, selling almost 56,000 cars in the first nine months of this year, an increase of more than 25%.
“The European luxury buyer still loves their three-pointed star,” says Michael Dunne, principal at Dunne Insights LLC, an automotive advisory firm. “Western customers don’t seem to attach the same level of importance to the digital experience, at least not yet.”
Reasonable similarities
At the Paris Motor Show, Hongqi promoted other evocative products beyond cars. It offered tailored suits and fine ceramics, evoking the strength of Chinese craftsmanship. On the automotive front, its main attraction was the Hongqi Guoya limousine, with a fine leather, woodgrain and chrome interior. The exterior was dominated by a long front end topped with a winged hood ornament reminiscent of the famous Rolls-Royce emblem.
The similarity is not a coincidence. Former Rolls-Royce design chief Giles Taylor has worked for Hongqi since 2018, steering the brand towards a modern aesthetic aimed at appealing to global luxury buyers. Nio, Yangwang and Xpeng have also tapped designers from companies such as BMW, Mercedes and Ferrari.
Brian Gu, vice president of Xpeng, another Chinese electric car brand, success in the luxury market is not limited to selling flashy and expensive cars, but you also have to take into account value. The Chinese manufacturer offers the G9 all-terrain vehicle, which can be equipped with massage seats and a 22-speaker sound system, for around 60,000 euros. “We can truly offer more performance, more comfort, more safety and more features, all for a more affordable price.“.
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