The collapse of German luxury sales

Back in 2021, BMW sold 846,237 vehicles in China. That total was up 8.9% Year-on-Year and accounted for nearly 40% of its global sales. In 2022, Mercedes-Benz sold 751,700 vehicles in China, which accounted for 37% of its global sales. In 2022, Audi sold 642,548 vehicles in China, which accounted for 40% of its global sales. For all 3 German luxury brands, China was their largest and most profitable market. In China, they are just commonly referred to as “BBA”.

This year has seen the dramatic collapse of ICE sales in China as you can see in the chart below (down 27% vs 2023 in August)

In the past couple of years, the slide in ICE market share first affected mass market brands and second tier foreign luxury brands (any that’s not BBA). But this year, it has really smashed against BBA. Over a week ago, Mercedes-Benz cut its full year margin target due to its weakening China sales. Anyone who follows the Chinese auto market can tell you that Benz has the strongest brand out of BBA. The fact that they cut outlook this late in the year due to China sales is a warning for all other foreign luxury brands in China. You can see why they did this by focusing on their recent sales:

Normally in China, sales go up steadily over the course of the year. It is abnormal for sales to dip in July and August vs Q2. However, that’s definitely what we saw from July to August for C & E class sedans.

The collapse was way more noticeable for BMW. They had made the decision to no longer participate in price war after June. And then this happened:

BMW sales just fell off a cliff by August. It was down almost 50% YoY. Sales of popular models like 3 and 5 series were down almost 50% vs June. This situation was such a disaster on BMW brand that BMW had to re-enter price war recently. But I don’t really see how things get be fixed up. BMW killed its own brand in China if you look at this average sales price discount vs MSRP.

In Aug, the actual discount vs MSRP was even higher than June. In Sep, the discount was even worse and I have only noticed a very small recovery in sales. Aside from X5, all its other models are discounting by at least 27% vs MSRP. That means, the NEV price war in the 200-300k segment has destroyed demand for BMW models.

The decline of foreign luxury brand can be seen in table below, which has the sales and average sales price of various brands.

Looking at this list, Audi achieved its sales of 46.1K in August by discounting its ASP to just 267k RMB (below Tesla and at same value as Xiaomi). The dramatic fall of BMW can be seen in both its lower sales (vs Benz and Audi) as well as its ASP dropping to just 323K RMB.

The situation is only going to get worse for BBA. For a long time, 56E (BMW 5 series, Audi A6 and Benz E class) dominated China’s luxury sedan market. When NIO ET7 arrived, there were hope that it would break this dominance, but that did not happen. 56E remained the symbol of luxurious sedan in China. However, Stelato S9 and Denza Z9GT have both launched recently and they are really a huge threat to 56E. If we look at CarFans China’s 72 HR report on Z9GT, it’s clear that they are pulling customers away from 56E. Other comparison of Z9GT also include Porsche Panamera. Even the customer profile were mostly BBA owners looking to trade-in their A6 and E-class. I would be shocked if 56E sales doesn’t drop significantly next year.

What happens when BBA’s profit margin in China drops to close to nothing? Well, I think it would be quite disastrous to their overall company wide performances. Only time will tell whether that leads to further plant closures or even government rescue. The European market has been quite weak this year. China becoming a drag could lead to not only plant closures in China, but also Europe.