China Luxury Car Market - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)

China Luxury Car Market - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)

The Chinese luxury car market is expected to register a CAGR of over 8% during the forecast period 2021 - 2026. The market was valued at USD 160 billion in 2020, and it is anticipated to reach USD 260 billion by 2026.

As the economy slowly recovering from the COVID-19 pandemic, consumer demand for premium cars has increased.

Most major luxury brands see China as the fastest-growing market in terms of growth rate. China is the largest auto market globally, but it is disproportionately important to German premium car brands. The German luxury car manufacturers Mercedes-Benz, BMW, and Audi all posted record sales last year despite the industry faced a decline in the past two years. Mercedes-Benz reported a year-on-year increase of 22.4%, while other carmakers like BMW and Audi are 15.4% and 10.6%, respectively.

According to data from the China Automobile Dealers Association, China’s luxury vehicle sales in the first 11 months of the year 2020 exceeded 3 million units with a year-on-year increase of 9.3%. This also marked the third consecutive year for luxury brands to register growth in the wake of downward pressure in China's overall automotive market.

The Chinese auto market continues to have great potential due to the higher rise in demand for premium cars. Luxury carmakers posted a positive sales growth from 2018 with a significant increase in demand for luxury cars among young people.

Currently, the luxury carmakers focussed on catering to highly advanced cars with better connectivity to smart devices and the internet. This also plays a crucial role in the sales surge of premium cars.

Key Market TrendsPremium Automakers and Second-Tier Brands Gaining Market Traction

The carmakers target the Gen Z consumers as they are more receptive to new technologies, aware of market trends, and focus on a stand-out personality. Owing to this, luxury automakers are focusing more on providing different connectivity features in their vehicles. The trend can be seen in the mass market segment as well.

The country’s luxury car market is led by European automakers, namely, Mercedes-Benz and Audi, and BMW. In November 2020, around 340,000 luxury vehicles were sold across the country, of which Mercedes-Benz sold a total of 72,000 vehicles, BMW sold 74,000 vehicles, and Audi sold 71,000 vehicles. BMW became the leading brand in the country, with a monthly sales volume of 44,582 units (including the sales of Mini cars).

Among Chinese brands, Geely Automobile Holdings Ltd is among the companies to have responded with heavy price cuts, which were managed by reducing the specifications and features of its vehicles. At the same time, Geely's sales rose by 24.7% year over year in May. China's iconic sedan brand Hongqi registered a new sales record in 2020, with the number of vehicles manufactured and sold both exceeding 200,000 units.

Tesla sold around 135,400 vehicles last year, a record for the company and making it the bestselling EV brand in the country.

Changing Policies and Tax Regulations are Likely to Drive the Market

Initiatives took by the Chinese government to boost the automotive sector and increase the sales of luxury cars in the country also helped in sales growth and attract new investments. In terms of policy and taxation reforms, China is considering a tax cut to revive its weakened automotive market. The tax cut may aid the country in supporting its automotive sector.

The government now allows international automakers to set up more than two joint ventures in the country. Most of the international players already have more than two joint ventures with their Chinese partners. Additionally, they can also set up wholly-owned companies in the country. These conditions create opportunities for other luxury brands to tap into the market. On the other hand, luxury car manufacturers are also cutting down the prices of their vehicle models to increase their sales in the coming years.

In 2018, around 2.82 million cars from the premium segment were sold in China, up from about 2.61 million luxury cars sold in the previous year. Additionally, the premium sport-utility segment increased by approximately 3.5% between January and November 2018.

Irrespective of the aforementioned trade war, the country witnessed a steady growth in luxury car sales. To mitigate the effect of the trade war, companies, such as Mercedes-Benz, Audi, and BMW, are planning to increase their production in China, as the trade war is putting pressure on global luxury brands, including Mercedes-Benz which exports US-made vehicles to China.

Additionally, luxury auto dealerships, such as Zhongzheng, China ZhengTong, and China Yongda, in order to mitigate the effects of trade wars and increase their profits, are selling non-US-made cars.

For instance, in 2019, Tesla Inc. became the first international company to operate a fully-owned manufacturing plant without a local partner.

Currently, only ultra-premium luxury auto brands are imported in the country, which may benefit from lower import tariffs, as these brands are fully imported from non-US factories.

Competitive Landscape

The Chinese luxury car market is fairly consolidated and majorly dominated by few players, like Daimler AG, BMW, Audi, Geely, Toyota Motors, and Tesla. Some of the major companies have their manufacturing plants set up in the country, giving them a cost advantage over their rivals. Further, they provide a shorter timeline for the dispatch of their produced vehicles.

Volkswagen (including Audi), Daimler (Mercedes-Benz), and BMW are the top three players in the country. BMW dominates the market with the highest sales than its German counterparts.

Other players include Ferrari, Bentley, Jaguar Land Rover, Hongqi, Rolls-Royce Holding PLC, Acura, and Infinity, among others.

Additional Benefits:

• The market estimate (ME) sheet in Excel format
• 3 months of analyst support

Companies Mentioned

Daimler AG (Mercedes
Benz)
Zhejiang Geely Holding Group
BMW AG
Volkswagen Group (Audi AG)
Tata Sons Private Limited (JAGUAR LAND ROVER LIMITED)
Rolls
Royce Holding PLC
Bentley Motors
General Motor Company
Tesla Inc.
Dongfeng
Infinity (Nissan Motor Co. Ltd)
Acura (Honda Motor Co. Ltd)
Cadillac (General Motors Company)
China FAW Group Co. Ltd
The Lincoln Motor Company
Lexus (Toyota Motor Corporation)

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