European premium brands face crisis as China sales collapse

European premium brands are seeing their key Chinese market crumble away as strong competition from local rivals in the electrified space badly eroded sales in the second quarter this year. BMW, Volvo, Porsche, JLR and Mercedes Benz suffered alarming drops of between 24 and 37%, according to figures from the companies themselves. The wider Volkswagen Group also reported a sales crash, down 37% , but has yet to split out Audi figures. The Chinese market in general has had tough year, with consumer sentiment hit by falling property and stock markets. Overall sales were down 23% in June, according to data from the China Passenger Car Association (CPCA). However, European premium brands are being hit especially hard by the much steeper decline in sales of pure-ICE cars, down 42% in June, as consumers pivot towards electrified models amid rising fuel prices sparked by the Iran war. Sales of ‘new-energy vehicles' (hybrids and EVs) were hit less hard, with sales down 9%. “China is right now the most difficult region in the whole automotive industry,” chief commercial officer Erik Severinson told investors on Volvo's second-quarter earnings call. For years China has provided a reliable source of income for premium brands, and it's still the number-one market for BMW and Mercede-Benz. However, Chinese premium brands like Aito, Li Auto, Nio, Xiaomi, Xpeng, Zeekr and others have steadily attracted customers with increasingly high-tech electrified models that European brands have struggled to match. In June, PHEVs and EVs accounted for 82% of all retail sales from home-grown brands, while those for mainstream joint-venture brands, such as that Volkswagen operates with SAIC and FAW, reached only 12%. The share of German brands in China fell to a new low of 13%, down from 21% in 2023. “Europeans are losing share in perpetuity in China. It’s difficult to call when that stops,” Ross MacDonald, analyst at the bank Citigroup, said on the Volvo investor call. Luxury car buyers have moved slower into electrification, with PHEVs and EVs accounting of 40% of luxury-brand sales June. However, when the CPCA drilled deeper into the figures for its monthly analysis, it found higher-priced segments were the only ones experiencing growth – if you had the right drivetrain. “The new-energy market trend in June was high-end electric vehicles breaking out and low-end volume models under pressure,” it said in its report. The relentless pace of new model launches from Chinese brands is hurting their European rivals. The new Li Auto i6 premium electric crossover, for example, was the third best-selling model outright in the first half of the year, with wholesales (sales to dealers) of 120,443, according to data from sales aggregator Best Selling Cars Blog. The Xiaomi YU7 electric performance SUV was fifth, while the BYD’s premium brand Fangchengbao took eight with its new Land Rover Defender PHEV rival, the Ti7. The European premium brands, bar Volvo, have pulled nearly all their PHEVs from the market this year after changes to tax incentives and fuel efficiency requirements rendered them uncompetitive, due to their electric-only ranges being much shorter than those of Chinese rivals. The pricing advantage that the European premium brands used to enjoy is being eroded by this shortfall in technology and continued discounting. They were also hit by changes to the 10% luxury tax China imposed July last year after threshold moved from ¥1.3 million (£145,000) to ¥900,000 (just over £100,000). Faced with unpalatable options, they have decided that maintaining volumes is not worth dent in profits. “We are deploying a strategy to protect our premium price position, not going into the discount wars,” Severinson said. Porsche meanwhile has cut its number of dealers in China from 100 to 80 as it restructures its business there from one selling almost 100,000 cars in 2022 to more like 30,000 this year, after sales dropped 32% in the first of 2026. JLR has pulled out of the mass premium “killing fields” by stopping local production of small models like the Range Rover Evoque to concentrate on far more profitable imported models like the Range Rover. The company was still hit with a 24% decline in sales in the second quarter, but that was lowest drop among all the European premium brands. “Unlike other OEMs, we are not signalling a problem in China. Now I expect to start seeing growth coming back into that market for us,” CEO PB Balaji told investors in June. JLR is banking on sales from ICE versions of the Range Rover, Range Rover Sport and Defender staying strong. For those still with sizeable manufacturing footprints in China (Audi, BMW, Mercedes and Volvo), the push now is provide models that will resonate with local customers. That means collaborating with local suppliers or car makers that can supply the tech needed to catch up to the fast-changing demands of those customers. While others pull out of the PHEV market, Volvo is reporting that PHEVs accounted for 40% of its sales in China in the second quarter, up from 11% the same period the year before, thanks to demand for the long-range XC70, which is built on a Geely platform. Mercedes meanwhile is banking on the launch of new models later this year “specifically tailored to Chinese customers”, including a long-wheelbase version of the new GLC Electric SUV and a new GLE ICE SUV, both with a “first-tier infotainment system”. Also overhauling its line-up is BMW, which has launched the new iX3 SUV and i3 saloon in long-wheelbase form in China. As with JLR and others, it has partnered with China’s Momenta on a software stack specific for the country. Audi’s gamble to launch its ‘no-rings’ AUDI brand with tech from SAIC has so far fallen flat, with wholesales of the E5 electric hatchback hitting just 4923 in the first six months, according to Best Selling Car Blog. The newer E7X SUV is doing better, achieving 4417 by the end of June after launching in April. Crumbling sales in China will invariably mean tougher competition elsewhere. “If European players are losing volume in China, it's very likely to assume that they will try a bit extra to sell more cars in Europe,” CEO Håkan Samuelsson said on Volvo's investor call. The same issue is expected to affect the US, now the biggest market for both JLR and Porsche, having taken over the mantle from China. JLR’s main focus will be on the US under Balaji, including building a new US-specific Defender model. China’s downturn is hitting profits: BMW issued a warning in June that its margin target for the year had dropped from 4-6% to 1-3% after sales fell 30% in China in the second quarter. Meanwhile vehicle and parts exports from Germany to China are down by more than a quarter to €4.7 billion in the first five months of this year compared with 2025, according to official data quoted by Bloomberg. Most vehicles exported from Germany to China are top-end premium models, and their sales decline will further hit a country that’s already being rocked by strong competition in Europe, likely forcing more job cuts.

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European premium brands face crisis as China sales collapse

BMW, Volvo, Porsche, JLR and Mercedes-Benz all suffered big drops in China during second quarter

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European premium brands face crisis as China sales collapse

BMW, Volvo, Porsche, JLR and Mercedes-Benz all suffered big drops in China during second quarter

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