German cars continue to collapse in China, German media: many young Chinese reject Western products

"Volkswagen, BMW, Mercedes-Benz continue to collapse in the Chinese market", the German "Handelsblatt" reported on the 23rd, before the opening of the world's largest auto show - the Beijing Auto Show on Thursday, German automakers in their most important sales markets continue to lose influence, market share is declining. Local Chinese car brands are becoming increasingly popular. German cars had to be extremely aggressive and proactive in order to catch up in the most competitive market.

German Chancellor Olaf Scholz drives a German car

Nearly 5% market share decline in 4 years

German automakers are falling further and further behind in China. Brands such as Volkswagen, Mercedes-Benz, BMW, and Audi account for only 21.8% of new car sales in their most important sales regions. For comparison: in 2020, the combined market share of the three major DAX companies in the Far East was 26.5%. After that, it continued to fall.

Registration data for electric vehicles and plug-in hybrids is particularly disappointing. The situation at Volkswagen is particularly dire. In the fast-growing new energy vehicle (NEV) segment, Wolfsburg's sales in China fell nearly 2 percent to 240,000 units last year. Its Chinese rival BYD grew by 55 percent, delivering 2.5 million electric vehicles.

Handelsblatt reported

Volkswagen, BMW, and Mercedes still dominate China's internal combustion engine business. But its importance is rapidly declining. "German automakers are in a difficult situation in China. Your brand legacy can become a burden. Andreas Hermann, Director of the Institute for Mobile Studies at the University of St. Gallen, said.

Volkswagen CEO Oliver Bloom told the Frankfurter Allgemeine Zeitung that Volkswagen is currently unable to keep up with its EV leadership on the charts. "That's because we had to overhaul our product strategy. In China, we are not prepared for strong growth in electric vehicles. ”

Volkswagen ID.7 at the Beijing Motor Show

Volkswagen's top-of-the-line ID.7 sold only one-tenth of the sales of the Hongqi E-QM5

A year ago, when Volkswagen launched the ID.7 electric sedan simultaneously in Berlin, New York and Shanghai, the Wolfsburg-based company dreamed of a "world car". Now it is clear: hopes are dashed, especially in the Far East. According to the company, the ID.7 had sold just 4,218 units in China as of the end of March since its launch in December. According to Marklines, as of the end of February, there were only 2,726 registrations based on insurance data, the hard currency in China's sales statistics.

Competitive models in their class are selling much better. For instance, since November 2023, the Chinese manufacturer GAC Group Aion S sedan has sold more than 40,000 units. Even the high-end manufacturer Hongqi E-QM5 persuaded ten times as many customers as the Volkswagen ID.7.

"The ID.7 is a top-of-the-line product," explains Stefan Mecha, Head of Brand at Volkswagen China. Volkswagen's goal is to "steadily bring electric sedans to market" rather than get involved in discount wars. It is doubtful whether this will succeed. Especially compared to its competitors, Volkswagen has also weakened sales of other electric models such as the ID.3, ID.4, and ID.6.

German car plant

It's like an "earthquake" moment

Volkswagen CEO Bloom and many other CEOs from German automakers and suppliers were shocked when they visited the China Auto Show for the first time since the pandemic. Chinese competitors, who have long been ridiculed, showcased electric products with bold designs and advanced technology.

Last year, for the first time in decades, Volkswagen lost its market leadership in China. There is a saying in the industry about "earthquakes". Since then, the new number one has been called BYD – and will remain so for the foreseeable future. If Volkswagen can continue to maintain its position as China's largest foreign automaker, they will be satisfied. In 2020, at the beginning of the pandemic, the internal combustion engine still accounted for 94% of the new car market share in China. This year, Volkswagen expects that value to drop to almost 50%.

Audi CEO introduces the new electric vehicle

BMW and Mercedes have also largely failed in developing the electric and plug-in hybrid vehicle markets. Compared to Volkswagen, the two southern German premium manufacturers have recently seen a significant increase in overall sales of new energy vehicles. However, compared to four years, this increase was not enough to compensate for the decline in internal combustion engine sales.

By 2023, only 1.7% of all new electric vehicles in China will be BMWs and 0.7% will be Mercedes-Benz. As a result, the prices of these companies are much lower than the usual values for diesel and gasoline engines. Both BMW and Mercedes-Benz have a market share of more than 4.5%.

BMW headquarters

The luxury sector has been redefined by Chinese automobiles

Unlike their parents, many young Chinese would reject "Western goods," the Business Daily noted. They prefer to buy electric vehicles from domestic suppliers.

"The big question is whether Western manufacturers will still be able to win the race for electric vehicles in China or simply profit from the internal combustion engine market," said Brandt, head of the automotive division at strategic consulting firm Oliver Wyman. "More than 100 brands are engaged in a brutal price war in China. The result: Since 2015, the average profit margin of China's automotive industry has shrunk from nearly 9 percent to 5 percent, according to the CPCA Industry Association.

The problem is that the high-end and luxury markets, which the Germans are particularly good at, are currently being redefined in China. The important thing is no longer a heavy-duty engine, but a smartly networked vehicle with useful features and the latest communication technologies. Andreas Herrmann, an automotive expert at the University of St. Gallen, said: "The Germans are not in the lead, the Chinese are the innovators here." "In addition, Europe and the United States are becoming less and less important as production and sales markets. A large number of cars are moving to Asia. "As a manufacturer with global ambitions, only those manufacturers with a focus on China will survive," Brandt analyzed. ”

CEO of Mercedes-Benz

Germany wants to be more aggressive in the competition

So how should German cars compete in the Chinese market? Professor Hermann encouraged Volkswagen, BMW, and Mercedes to adopt new approaches. Therefore, the Germans should become more radical in design and form a broad coalition in software in order to compete with the ecosystem of attackers who are making inroads into the automotive industry, such as smartphone giant Xiaomi.

Brandt also suggested that German manufacturers should be proactive against their Chinese rivals. "Taking a defensive position in China is fundamentally wrong," the expert said. "German car manufacturers must be fully involved. For them, there is no conceivable future without China. ”

China's first car ship to Germany

To ensure this relevance, Volkswagen, BMW, and Mercedes are starting to rely on new platforms worth billions of dollars. Their purpose was to bring the Germans back to the forefront of technology. A few weeks ago, Mercedes boss Kang Linsong said in a conversation with German Chancellor Olaf Scholz that they would produce the next generation of electric vehicles with new architectures such as CLA or GLC, which should be 30% more efficient, charge twice as fast, and sometimes travel more than 850 kilometers. "Everything is new. ”

BMW is planning to make a similar leap forward with the "Neue Klasse", while Volkswagen plans to make a similar leap with the "SSP" architecture, aiming to make "Volkswagen China" its own independent brand. The question is, can German cars really return to their former top?