Chinese demand for foreign luxury cars is waning as customers opt for more affordable Chinese brand models, often sold at big discounts, catering to their taste for fancy electronics and comfort.
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That is bad news for European carmakers like Porsche, Aston Martin, Mercedes-Benz and BMW that have long dominated the upper reaches of the world's largest auto market.
A prolonged property downturn in China has left many consumers with little appetite for big purchases. Meanwhile, the well-to-do are becoming increasingly shy about publicly displaying their wealth, said Paul Gong, UBS head of China Automotive Industry Research.
Many car buyers have been swayed by a 20,000 yuan ($A4,250) trade-in subsidy offered by the Chinese government for purchasing electric and plug-in hybrid vehicles.
People tended to buy cheaper, entry-level cars where the discount will count more and those cars are mostly Chinese made, Gong said.
"Slowing economic growth is one key driver behind weaker demand for premium cars," said Claire Yuan, director of corporate ratings for China autos at S&P Global Ratings, referring to a segment that typically counts car brands such as Mercedes-Benz and BMW.
The market share of premium car sales in China, usually priced above 300,000 yuan ($A63,690), more than doubled between 2017 and 2023 to about 15 per cent of total sales, S&P said.
That trend is now reversing. The share of premium cars sales fell to 14 per cent in 2024 and to 13 per cent in the first nine months of 2025, S&P said.
While luxury auto sales have slowed, Chinese manufacturers, including electric vehicle maker BYD, have become more aggressive than many Western brands in technological innovation, frequently rolling out new electric vehicles and hybrids at cheaper prices, including premium vehicles, analysts said.
"Their (Chinese carmakers') products are more competitive and more affordable even in the premium segment," Yuan said.
"That's why these foreign brands are gradually losing momentum."
The Chinese brands' share of passenger car sales climbed to almost 70 per cent in the first 11 months of this year, according to China Association of Automobile Manufacturers.
It reported on Thursday that German brands held a 12 per cent share, Japanese brands around 10 per cent and US brands nearly six per cent.
BYD already has overtaken Volkswagen as the biggest car seller in China in recent years.
BYD is so far the best selling car brand this year in China for "new energy vehicles," which include electric vehicles and hybrids, according to the China Passenger Car Association.
BYD had cut prices of its electric and plug-in hybrid models by up to 34 per cent, putting pressure on major rivals like Geely and Leapmotor.
Mercedes-Benz's sales by units in China fell 27 per cent from a year earlier in the July-September quarter, according to its latest earning report.
The number of BMWs and its subsidiary-brand Minis sold in China dropped 11.2 per cent year-on-year in the first nine months of 2025. Porsche and Aston Martin also cited pressure from weaker demand in China.
Italian luxury carmaker Ferrari reported a 13 per cent year-on-year drop in car shipments to mainland China, Hong Kong and Taiwan in January-September. It was the only region where sales declined during that time.
Ola Källenius, CEO of Mercedes-Benz, told investors in late October that "hyper-competition in China is not going away anytime soon".
The downturn in interest in luxury vehicles is hitting dealerships hard.
China's monthly auto production in November surpassed a record of 3.5 million units for the first time, the CAAM reported Thursday, but domestic auto sales dropped four per cent year-on-year under fading demand as some trade-in subsidies were halted in some regions.
Australian Associated Press
