German luxury automotive giant Mercedes-Benz is maintaining its unwavering commitment to premium pricing in China, even as a brutal pricing war has cost the group market share as local customers increasingly favor cheaper domestic alternatives in the world’s largest automotive market.
Speaking ahead of the prestigious IAA auto show in Munich, CEO Ola Kaellenius revealed that Mercedes-Benz Group AG car sales dipped last year as the German luxury-auto maker struggled with weak demand for pricey models in China. The company’s China operations suffered a significant 19% decline in vehicle sales during the second quarter of 2025, with deliveries dropping to just 140,400 units—a stark indicator of the challenges facing European luxury brands in the region.
The Electric Gambit
Central to Mercedes-Benz’s recovery strategy is the newly unveiled electric GLC SUV, which Kaellenius positioned as a game-changer for the brand’s China prospects. “This is going to hit the nail on the head in terms of what Chinese Mercedes customers are looking for,” the CEO declared confidently.
Despite mounting competitive pressure, Kaellenius made it clear that Mercedes-Benz would not compromise on its premium positioning. “And yes, we charge a little bit more. But GLC fans can rest assured… from a pricing point of view, if you’re currently a GLC customer, you will also feel at home with this new electric GLC,” he emphasized, signaling the company’s determination to protect its luxury brand identity even at the cost of market share.
China’s Price War Intensifies
The backdrop to Mercedes-Benz’s strategic stance is China’s unprecedented automotive pricing conflict, where NEV sales surpassed 10 million units in 2024, with domestic brands securing a 60% market share. In 2024 alone, 227 NEV models received price cuts, averaging 18,000 yuan in reductions. The China Association of Automobile Manufacturers (CAAM) and the Ministry of Industry and Information Technology (MIIT) issued public warnings against “disorderly price wars,” citing a drop in industry-wide profit margins from 4.3% in 2024 to 3.9% in Q1 2025.
According to Volkswagen Group, 130 brands are competing for a share of the EV and plug-in hybrid sales, creating an intensely competitive landscape that has particularly challenged Western automotive manufacturers.
Premium Strategy Under Pressure
Like its German luxury counterpart Porsche, Mercedes-Benz has chosen to protect profit margins rather than engage in the aggressive price competition that has characterized China’s automotive sector. Under the influence of the price war, the three German luxury brands—BMW, Mercedes-Benz, and Audi—are expected to lose about 500,000 units of sales in the Chinese market, according to industry analysis.
However, Chinese brands dominate under 34,750 USD, while higher tiers are held by international brands, suggesting that Mercedes-Benz’s premium positioning may still have viability in the upper market segments.
Trade Tensions Add Complexity
Beyond the China challenge, Mercedes-Benz faces additional pressure from U.S.-European trade tensions. The company is currently awaiting a reduction in U.S. auto import tariffs from the current 27.5% to 15%, following pledges from Washington as part of broader trade negotiations with the European Union.
“The European Commission and its trade team are working with the American administration on this,” Kaellenius noted, expressing optimism that the U.S. administration would soon implement the tariff reductions through executive order. While he declined to quantify the financial impact of current tariffs, Kaellenius acknowledged that “we’re doing what we can to mitigate it.”
Looking Forward
As Mercedes-Benz navigates these dual challenges of Chinese price competition and international trade complexities, the company’s commitment to its premium strategy represents a high-stakes bet on brand loyalty and market positioning over volume sales. The success of the new electric GLC SUV in China may well determine whether this approach can sustain the company’s position in its most crucial overseas market.
The automotive industry will be watching closely to see whether Mercedes-Benz’s refusal to compromise on pricing proves prescient or whether the relentless pressure from domestic Chinese competitors ultimately forces a strategic recalculation.
WHAT YOU SHOULD KNOW
Mercedes-Benz is refusing to cut prices in China despite losing significant market share (19% sales decline in Q2 2025) to cheaper domestic brands. The company is betting its premium strategy and new electric GLC SUV can win back Chinese customers who are increasingly choosing local alternatives over expensive German luxury cars.
This high-risk approach prioritizes profit margins over sales volume in the world’s largest auto market, while Chinese brands have captured 60% of the electric vehicle market through aggressive pricing. Mercedes’ strategy will either validate the power of luxury branding or prove that even premium customers have their price limits in today’s competitive landscape.
