Xiaomi has previously leveraged the technical know-how of China's EV industry by packaging it into a sleek Porsche-like body at an affordable price with its SU7, and has followed the formula with its latest YU7, which evokes the luxury aesthetics of Ferrari and Aston Martin. Although pricing has yet to be determined, the announcement of the new model has generated significant excitement across China's internet.
Chinese automakers have in recent years ventured into the luxury segment, particularly in the EV space. By contrast, Porsche has faced setback after setback in the Chinese market, as acknowledged by Volkswagen AG CEO and Porsche chairman Oliver Blume, who has encountered criticism at a recent shareholder meeting. In his opinion, China has seen rapid expansion of its general EV market, yet its luxury EV market is essentially nonexistent and may not develop in the short term. Porsche is thus cutting its physical sales presence in China by a third, leaving only 100 retail outlets in China by 2027. Additionally, 2022 was the first year in two decades that Porsche sales dropped, with a decline of 2.5%; this decline further accelerated to 15% in 2023 and 28% in 2024.
Price-slashing headaches for foreign luxury brands
Supply chain sources point out that demand in China has been severely impacted by recent economic volatility, with the Chinese government cracking down on ostentatious spending, declining consumer purchasing power, and geopolitical factors leading to a surge in nationalistic preferences for domestic brands. After China's real estate market collapsed, the automobile market became the main pillar propping up its gross national product. Domestic brands have been the main driving force in this surge with their new energy vehicle (NEV) products, but even as they gain market share, price slashing and intense competition have become major issues.
However, foreign automakers are poorly accustomed to such rapid price-cutting strategies. This is especially true in the luxury car segment, where a secondary market cannot take shape when prices fall rapidly. Volkswagen AG has thus tried to regain ground in the Chinese market by working with local companies to produce price-competitive EVs for the general market, yet this may still be an uphill battle against Chinese brands. Meanwhile, Porsche, as a luxury subsidiary of the group, is now scaling down its operations in China.
Other upscale brands such as BMW and Mercedes-Benz face similar challenges, as all three leading German carmakers have seen severe losses despite their heavy investments in China. The ongoing challenges with US auto tariffs only compound their woes, since the US and China are their two largest export markets.
Chinese brands have intensified the challenge by offering vehicles with designs and interiors similar to conventional luxury models. After outpacing Porsche, Xiaomi is targeting Ferrari with its upcoming YU7, while the Italian carmaker is now rumored to be exploring a partnership with Chinese EV maker Leapmotor.
Software delays at Volkswagen Group
According to foreign media reports, Porsche chief technology officer Sajjad Khan has acknowledged ongoing issues with Volkswagen AG's software subsidiary Cariad. Software delivery delays have led to the postponement of several new models, prompting management at Porsche to consider taking legal action against Cariad.
While Cariad was founded by former Volkswagen CEO Herbert Diess, problems at the software division are widely believed to have contributed to his departure. One of Oliver Blume's top priorities after taking leadership has been addressing Cariad's software delays, which have hampered the launch schedules of Volkswagen, Audi, and Porsche alike. However, any legal action would likely complicate these internal conflicts even further. Meanwhile, whether Blume can effectively navigate these headwinds while juggling dual leadership roles at Volkswagen and Porsche remains to be seen.
Article translated by Kevin Wang and edited by Jerry Chen
