Mercedes, BMW, VW, Audi, Porsche lose China ground
Live Events Bloomberg Ola Källenius, CEO of Mercedes-Benz Group AG. Photographer: Qilai Shen/Bloomberg Bloomberg Volkswagen AG CEO Oliver Blume. Photographer: Angel Garcia/Bloomberg Bloomberg as a
Live Events Bloomberg Ola Källenius, CEO of Mercedes-Benz Group AG. Photographer: Qilai Shen/Bloomberg Bloomberg Volkswagen AG CEO Oliver Blume. Photographer: Angel Garcia/Bloomberg Bloomberg as a Reliable and Trusted News Source Addas a Reliable and Trusted News Source Add Now! (You can now subscribe to our (You can now subscribe to our Economic Times WhatsApp channel After decades of winning over Chinese buyers with its German engineering, Mercedes-Benz Group AG took the humbling step last fall of partnering with fast-food chain McDonaldâs to hype its newest car.In the âSo Mc-Benzâ campaign, Mercedes allowed a cheeseburger figurine to take the spot of its traditional three-pointed star on the all-electric CLA, a sedan it hoped would stop sales from sliding in the worldâs largest car market. The were supposed to make the vehicle popular with Chinaâs young and hip.It didnât work. Mercedes sold only 1,153 units in China in the first half, a fraction of the more than 80,000 similarly priced SU7 sedans Xiaomi Corp. delivered in the period. The performance echoes the challenges BMW AG, Volkswagen AG and Porsche AG face in China, where they all reported second-quarter sales declines of at least 30%, worse than the overall marketâs drop. Meanwhile, the likes of Xiaomi and BYD Co. are taking customers from them, depriving the Germans of a key growth and profit driver. So far, none of them has found a way to arrest the downward spiral.Itâs not that theyâre not trying. Most of them have partnered with Chinese companies to gain access to the latest EV technology and better understand what local drivers want. Mercedes built a long-wheelbase version of the CLA to appeal to Chinese tastes for a roomier back seat. It packed the car with software including AI-powered voice control and priced it from just 229,000 yuan ($33,943), roughly 40% cheaper than the European version.Instead of winning clients, Mercedes had to concede that competing in China would require even further price cuts that would see it lose money on almost every electric CLA sold, according to people familiar with the matter. The company is limiting its push for the car until economics improve, the people said, asking not to be identified discussing internal commercial decisions.Mercedes said the model was never meant to drive volume but rather show off the companyâs latest technology in the hotly contested entry-level segment.
The carmaker is âfocusing on sustainable growth rather than purchasing short-term market share,â it said in an emailed statement. The company pointed to the electric GLC, a compact sport utility vehicle introduced in China last month, as doing well in terms of market feedback and pre-orders.Chinese manufacturers, meanwhile, are willing to endure significant pain to win market share. BYDâs first-quarter profit tumbled 55% to its lowest level in more than three years as the price war takes its toll. Geely Automobile Holdings Ltd.âs income also fell in the period.At this point, significant parts of German carmakersâ offerings are simply priced out of China, according to JPMorgan analyst Jose Asumendi. While the overall Chinese market is down due to a protracted real estate crisis thatâs weighing on spending, German companies are losing out more because their lineups tend to be pricier and feature more combustion-engine cars, a segment thatâs in decline. BMW slashed its margin outlook due to the China slump, putting it on course to be the least profitable major European automaker this year. Managers including Mercedes Chief Executive Officer Ola Källenius expect the market to remain brutally competitive for years to come.The problem isnât only price. In many cases, German carmakers still operate on the development-to-market schedule of the gasoline era, refreshing products every four years or longer, and teasing snippets of new cars long before drivers can buy them. But in China, the EV market has come to resemble the frenzied pace of consumer electronics, with brands rejuvenating cars as fast as 18 months and having a new model ready for mass purchase right off the bat.âAnd while itâs being sold, youâre already making the next iteration,â said Xing Zhou, an automotive adviser at AlixPartners who has worked in both Germany and China. âThereâs no way that this industry will go back to the old way.âThatâs fueling a fundamental shift in brand perception in China, where Mercedes, Audi and BMW are losing their luxury edge because theyâre perceived as trailing local manufacturers on software and EV technology.Part of why the electric CLA is flopping is because rivals led by Xiaomiâs SU7 dominate the segment at that price point with more advanced automated-driving functionality, a mobile-phone first entertainment system and hipper branding, said Li Yanwei, who advises the China Automobile Dealers Association.
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