One year after the cut: China's luxury tax weighs on German manufacturers' sales figures

The sales figures for the first half of 2026 illustrate the scale. At Porsche, also a VW subsidiary, deliveries in China in the first half fell by 32 percent compared with the same period of the previous year. Mercedes-Benz recorded a decline of 28 percent in passenger car sales in China, the company announced. BMW reported a drop of 20 percent, Audi one of 19 percent.

Manufacturers see limited share of affected models

At the same time, the manufacturers point out that the regulation affects only a limited part of their portfolio. Mercedes stated that the share of affected vehicles in China is less than five percent of total sales and is concentrated exclusively on the top segment, in particular the S-Class and Mercedes-Maybach. A company spokesperson added: „Grundsätzlich habe sich der Wettbewerb in den vergangenen Quartalen über alle Segmente hinweg weiter intensiviert. Dies betreffe sowohl internationale als auch lokale Hersteller.“

At BMW, according to the company, the tax affects „einzelne Oberklassemodelle, die nach China importiert werden“. The lowered threshold has therefore „kaum Auswirkungen auf unseren Gesamtabsatz im Markt“. VW subsidiary Audi also pointed out that the regulation „nur eine sehr begrenzte Anzahl der in China verkauften Modelle des Volkswagen-Konzerns“ affects.

CPCA: Rise of Chinese brands as the "decisive blow"

The background to this development is a combination of several factors. The Secretary General of the Chinese industry association CPCA, Cui Dongshu, explained that demand for combustion-engine vehicles priced between 900,000 and 1.3 million yuan in particular had „deutlich zurückgegangen“. He described the rise of Chinese premium brands as a „entscheidenden Schlag“, while price wars and tax policy merely created „kurzfristigen zusätzlichen Druck“.

The most urgent issue is the „ernsthafte Rückstand bei der Lokalisierung intelligenter Fahrzeugtechnik und bei der Elektrifizierung“. Cui Dongshu warned that German manufacturers would either have to pass on the additional burden through higher end prices, thus weakening their competitiveness, or swallow it themselves at the expense of their margins.

Meanwhile, Chinese consumers are increasingly turning to other offerings. According to the article, consumers are increasingly switching to Chinese upper-class models with electric or hybrid drives as well as to cheaper used luxury cars. At the same time, manufacturers are trimming expensive special equipment and deliberately keeping prices below the tax threshold.

On the overall economic situation, the VDA spokesperson added that the measure came at a time „an dem die wirtschaftlichen Rahmenbedingungen in China ohnehin anspruchsvoll waren und es noch immer sind“. The tax adjustment is further dampening consumer sentiment and is also weighing on the bilateral trade climate between the EU and China.

Consumer switching behaviour

The Chinese government had significantly expanded the luxury tax, which has existed for around ten years and currently stands at ten percent, by lowering the threshold from 1.3 million yuan (around 168,000 euros at the previous exchange rate) to 900,000 yuan (around 116,000 euros). High fuel prices are currently making combustion-engine vehicles additionally unattractive in China.

The effects are also visible across the Volkswagen Group as a whole. According to the latest Volkswagen annual report, sales in China fell by eight percent from 2024 to 2025. Mercedes-Benz cited the China business as the main reason for its own decline; worldwide, the company sold 1.01 million passenger cars in the first half, six percent fewer than in the same period of the previous year.

Analysts divided on Volkswagen

The VDA had issued its statement at the request of the Deutsche Presse-Agentur. Analysts, meanwhile, were divided on Volkswagen: Deutsche Bank rated the VW preference share "Buy" on 16 July 2026, RBC Capital Markets rated it "Outperform", while JPMorgan Chase & Co. rated it "Neutral".

Overall, it is clear that the luxury tax is only part of a larger problem for German premium manufacturers. The structural shift in the Chinese automotive market, the rise of domestic premium brands and electrification are putting increasing pressure on established players – with consequences for market shares, margins and future strategy.