German high-end carmakers BMW (BMWG.DE) and Mercedes (OTCPK: DMLRY) saw their sales in China dip in the third quarter, with the latter hurt by supply chain issues and a slowdown in demand for new electric vehicles. The two companies are at the forefront of the global luxury market, and China is one of their biggest markets. But, a trade war between the world’s two largest economies has shifted their strategy of prioritizing more fabulous local presence in China.
Despite the China market slowdown, Mercedes and BMW have kept their plans for a strong 2023. The companies have reaffirmed their full-year guidance of flat sales growth. Moreover, the companies are boosting research and development spending, which could boost the production of their EVs.
However, the companies face headwinds from several other factors. In particular, the global semiconductor shortage and congestion in shipping have limited their ability to meet customer demand. In addition, the recent change in Germany and China’s relationship has exacerbated economic uncertainty and geopolitical tensions.
Mercedes’ sales in the country fell 4% in the third quarter, a steeper decline than the global figure of 1%. It said that the slowdown in China was mainly due to model changes for its SUVs, which have a smaller profit margin than sedans. The company also needed more components for its EQE electric cars, which are being made in China, and the availability of spare parts for its entry-level vehicles.
In contrast, BMW’s sales in the market slipped by only 1.5%. The German automaker has overcome the challenges of Chinese demand, partly due to a shift in customer preferences for electric vehicles. The BMW iX3 and the X5 EV models have seen strong demand in the Chinese market. Moreover, the new BMW 7-Series is a hit in the premium segment.
The redesigned BMW X1 SUV has also been a winner for the brand in the China market. It has a more spacious interior, which is especially welcome for long-distance drives. Its front seats are also more comfortable, and the dashboard is redesigned for a modern look. The car also comes with BMW’s latest driver interface software and a digital instrument cluster that mimics the console display.
In contrast to the German brands, China-based Li Auto (Nasdaq: LI) has set a goal of surpassing the sales figures of BMW, Mercedes, and Audi by 2024. The company is focusing on its high-end Maybach luxury vehicle and its premium brand image. In addition, it is investing in developing its local manufacturing. The company has six production lines with a capacity of 360,000 units. The company has already established a network of more than 200 outlets nationwide. The firm is leveraging its local presence to reduce production and distribution costs. Li Auto is also aiming to boost sales of its e-mobility vehicles. The company has partnered with Chinese auto parts maker Xiaohong (Xinhua) to produce the batteries for its e-mobility vehicles.
