Escalating Dilemma for German Car Producers in China Due to Imposed High Taxes - China's implementation of a new high-end tax encourages high-end German automakers to establish operations within the country
In a significant move, China's Ministry of Finance has revised the tax rules for luxury cars, lowering the threshold at which the tax applies and extending it to all types of powertrains. This change has notably impacted premium car manufacturers like Audi, Porsche, Mercedes-Benz, and BMW in China.
The new tax rule, which came into effect last Sunday, means that many high-end models from these German luxury brands, whose prices typically exceed the new 900,000 yuan threshold, are subject to the increased consumption tax. Affected vehicles include the all-electric EQS and combustion engine S-Class from Mercedes-Benz, the Taycan and classic combustion-engine models from Porsche, the A8 L and RS variants of some models from Audi, and the 7 Series and all-electric i7 from BMW.
Previously, only combustion engine cars priced above 1.3 million yuan were taxed. However, several premium electric models now also fall under the tax regime.
Mercedes and Porsche currently hold substantial shares in China’s higher-end internal combustion engine vehicle segment, with 48% and 18% market share respectively. The new regulation, intended to be price and technology neutral, shifting from engine displacement-based taxation to a consumption-based approach, aligns with broader tax reforms and addresses environmental and economic considerations.
German manufacturers are actively monitoring the market. BMW publicly downplayed the impact, suggesting that buyers in this segment are less sensitive to such tax-related price increases, while Audi plans to adjust their strategies if needed to maintain competitiveness under the new tax regime.
Porsche is currently reviewing the details of the new luxury car tax directive and its potential impact on business. Mercedes-Benz declined to comment on the new luxury car tax directive. The president of China's Association of Automobile Manufacturers, Cui Dongshu, noted that luxury vehicles account for only a tiny fraction of the Chinese car market.
The new tax rule particularly benefits Chinese brands operating in the luxury segment that were previously above the threshold. Auto imports have significantly decreased in recent years in China. China's Association of Automobile Manufacturers described the new luxury car tax directive as "reasonable."
Ferdinand Dudenhöffer, an auto expert, believes the new regulation will not pass by German manufacturers without a trace. Porsche, along with its dealer partners, is exploring solutions to protect the interests of directly affected customers. The vehicles most affected by the new regulation are those in which German manufacturers currently have an edge in China, namely large-displacement internal combustion engines.
Audi stated that the new luxury vehicle tax policy affects only a limited number of models sold in China. The change does not apply to used cars.
In summary, China’s new luxury car tax lowers the price threshold and expands its scope to all vehicle types, significantly increasing the tax burden on premium and electric models of Audi, Porsche, Mercedes-Benz, and BMW, potentially influencing pricing, sales strategies, and market dynamics within the luxury segment in China.
- The revised tax rules for luxury cars in China have led to a higher consumption tax for many high-end models in the employment sector, specifically from German luxury brands like Audi, Porsche, Mercedes-Benz, and BMW.
- The new tax rule, which applies to all types of powertrains, has expanded the employment sector by potentially impacting employment policies of these car manufacturers in China, as they adjust their strategies to maintain competitiveness under the new tax regime.
- The new luxury car tax directive, which aligns with broader tax reforms and addresses environmental and economic considerations, has particular benefits for Chinese brands operating in the luxury segment, affecting the industry, finance, and transportation sectors of China.
