Eliza Wong
The Chinese auto market is experiencing a tectonic power shift that’s rewriting the luxury playbook. Recent data reveals imported premium vehicles plunged 32% year-over-year in the first half of 2025 – a staggering decline where June’s entire import volume (43,000 units) was eclipsed by domestic EV brand AITO’s single-month sales (44,600 units). This reversal of fortunes underscores a fundamental truth: There is no eternal moat in the Chinese auto market, only reverence for trends and rapid response. As traditional luxury stalwarts like Jaguar and Cadillac slash prices to ¥150,000 ($20,600) while domestic players like Huawei’s HarmonyOS-powered AITO and NIO achieve triple-digit growth, we examine how economic pressures, technological disruption, and shifting consumer preferences are dismantling decades of imported prestige.
Key Market Shifts
- Imported luxury vehicles dropped 32% YoY in H1 2025 (220,000 units) – the worst decline in recent history
- Domestic premium EV brands captured over 60% of China’s luxury NEV market in just 4 years
- Traditional luxury brands like Jaguar and Maserati implemented unprecedented price cuts (up to ¥260,000/$35,800 reductions)
- HarmonyOS Intelligent delivered 80,000 vehicles in just 39 months – faster than any premium brand in history
- BBA (BMW, Mercedes, Audi) all reported declining profits despite market expansion
The Import Collapse: Numbers Don’t Lie
China’s imported vehicle market is experiencing what China Passenger Car Association (CPCA) Secretary General Cui Dongshu (崔东树) calls “recently rare huge declines.” The 32% year-over-year contraction in H1 2025 continues a seven-year downward spiral since the sector’s 2014 peak of 1.43 million units. What makes this downturn particularly alarming is its acceleration despite a growing overall luxury market.
Luxury Discount Avalanche
Desperate moves by traditional premium brands reveal their distress:
- Lexus slashed ES series prices to ¥200,000 ($27,500) range – nearly half its 2021 peak
- Cadillac’s new XT4 launched at ¥159,900 ($22,000)
- Jaguar’s XEL 90th Anniversary Edition discounted ¥174,800 ($24,000) below MSRP
- Maserati Grecale SUV offered at ¥388,800 ($53,500) – 40% below official pricing
These fire-sale tactics have done little to reverse declines, with most brands still reporting double-digit sales drops. Profitability has evaporated across the board: BMW’s Q2 net profit fell 19%, Mercedes-Benz declined 22%, while Porsche recently downgraded its full-year outlook.
Domestic Luxury’s Strategic Takeover
While traditional players stumble, China’s homegrown premium brands are rewriting the rulebook. The luxury segment has actually grown dramatically – from 1.45 million units in 2016 to 5.11 million in 2024 (18.5% market penetration). Domestic manufacturers captured this expansion by dominating the electric transition:
The NEV Offensive
- HarmonyOS Intelligent (AITO parent) sold 204,600 vehicles in H1 2025
- NIO deliveries jumped 30.6% to 114,100 units
- New energy vehicles now comprise 65% of premium segment sales
This transformation occurred at breathtaking speed. In 2020, domestic brands held just 10.8% of the luxury NEV market; by 2024, they commanded over 60%. The speed of this market capture demonstrates there is no eternal moat in the Chinese auto market, only reverence for trends and rapid response.
Economic Pressures Amplifying the Shift
External economic forces are accelerating the luxury reset. Data from Wu Po Data Terminal shows 4,135 corporate bankruptcy filings affected 23,035 companies in H1 2025 – 56.57% concentrated in eastern coastal provinces where imported luxury sales traditionally dominated.
The Tariff Domino Effect
Consider Shanghai exporter Slite’s predicament: Their premium cookware, previously exported to the U.S. at ¥1,800/unit, now sells domestically for ¥219 due to collapsed American orders from tariffs. This pattern repeats across manufacturing sectors where companies traditionally purchased luxury vehicles for:
- Corporate tax deduction benefits
- Consumption tax avoidance
- Executive compensation packages
With profit margins evaporating, these fleet purchases have virtually disappeared. Meanwhile, domestic premium brands proved more resilient to these economic headwinds through several advantages:
- Lower price points (AITO M5 starts at ¥249,800 vs. BMW i3 at ¥353,900)
- Stronger domestic supply chains
- Favorable government EV policies
The Technology Chasm
Traditional luxury brands’ delayed electrification and connectivity strategies created openings that domestic players exploited. While German premium brands initially modified existing platforms for EVs (“oil-to-electric”), Chinese manufacturers built dedicated electric architectures from inception. The technology gap is most evident in three areas:
Software-Defined Driving
- Domestic: City NOA navigation, AI driver models, over-the-air upgrades
- Traditional: Highway-only assistance, limited connectivity features
HarmonyOS Intelligent’s full-stack development approach enabled seamless integration of Huawei’s advanced driver assistance systems (ADAS) and HarmonyOS cockpit – delivering features traditional brands can’t match. NIO’s battery swap ecosystem similarly addresses critical range anxiety pain points. These innovations prove there is no eternal moat in the Chinese auto market, only reverence for trends and rapid response.
Traditional Counteroffensive Emerges
Recognizing the existential threat, legacy automakers are finally mounting serious responses through unprecedented partnerships with Chinese tech leaders:
Strategic Tech Alliances
- BMW × Momenta: Co-developing China-specific autonomous driving for Neue Klasse EVs
- Mercedes-Benz: Next-gen CLA EV featuring Momenta’s L2++ autonomous system (2026 launch)
- Audi × Huawei: Multiple models with Qiankun intelligent driving technology
These collaborations represent significant strategic shifts, with German automakers conceding that local tech partnerships are essential for competitiveness. However, the timeline for impact remains uncertain – new jointly developed models won’t arrive before 2026, giving domestic brands continued runway.
Ultra-Luxury’s False Security
While mainstream premium brands scramble, ultra-luxury players like Ferrari and Bentley maintain relative insulation due to:
- Exclusivity pricing power (limited production)
- Handcrafted heritage appeal
- Status-driven purchase motivations
However, domestic challengers are already breaching this final bastion. BYD’s Yangwang U8 luxury off-roader received over 20,000 pre-orders within three months of launch, while Zunjie’s flagship sedan targets the ¥1 million ($138,000) segment. These entrants combine traditional luxury materials with bleeding-edge EV technology – a combination legacy ultra-premium brands can’t yet match at scale.
The Road Ahead
The luxury reset demonstrates there is no eternal moat in the Chinese auto market, only reverence for trends and rapid response. Traditional automakers must accelerate beyond cosmetic changes to survive:
- Localize R&D: Establish dedicated China tech centers for market-specific development
- Replatform urgently: Replace modified ICE platforms with dedicated EV architectures
- Embrace open ecosystems: Partner with Chinese tech leaders without reservation
- Redefine luxury: Shift from badge prestige to tech-driven experiences
For consumers, this transformation brings unprecedented choice: premium craftsmanship now comes with cutting-edge connectivity at accessible prices. Industry watchers should monitor three critical developments through 2026: BBA’s joint-venture EV launches, NIO and AITO’s European expansion, and BYD’s Yangwang sales figures. One truth remains self-evident – brands that master rapid response to Chinese consumers’ evolving expectations will dominate the premium landscape, while those clinging to past glory risk becoming historical footnotes.
