Mercedes-Benz Chief Executive Ola Källenius has said that the fierce pricing wars still rattling through China’s car market are here to stay, telling reporters at an event near Helsinki: “competitive intensity in China, I don’t believe it’s going to go away anytime soon; it’s a new reality.” Chinese brands, he noted, are spending “an enormous amount of money” to break into the luxury segment German automakers like Mercedes have long dominated with models like the S-Class and G-Wagon.

The pressure traces to Chinese manufacturers’ dominance in electric vehicles, which has fed rapid successive model launches and near-ruinous pricing that has already hit sales at Mercedes, Porsche, BMW and Audi—all of which are now restructuring to become leaner. This edge in electrification has subsequently expanded into software and connectivity leadership. At the same time, China’s luxury market has shrunk amid a protracted property crisis that still weighs on spending. Källenius was, however, quick to emphasise that Mercedes still “dominates” the very top end.

Källenius made the trip to unveil the new GLA compact SUV, aimed at bolstering Mercedes’s entry-level lineup with technology including 800-volt charging and an AI voice assistant, both of which were previously reserved for pricier models. The automaker is attempting a conscious break from the polarising and underperforming design of Mercedes’s first EQS and EQE-generation EVs. This was a European launch, however: German orders opened on 30 July from €48,600 (US$55,700) as Mercedes targets a recovery to around two million annual global sales.

Of course, it is the China numbers underpinning Källenius’ remarks that put this attempted recovery on thin ice. He pledged further cost cuts concentrated in Germany to partially address declining sales. Deliveries in China fell 19% in 2025 to 575,000 units, then dropped a further 27% in the first quarter of 2026 and 30% in the second, pulling volumes back to levels last seen in the 2010s, and far below the 774,000-unit peak reached in 2020.

One model illustrates the scale of that erosion directly. It was reported earlier in July that the automaker had paused production of the CLA L, a China-exclusive long-wheelbase electric sedan unveiled in November 2025. The model boasted segment-leading specifications, including 866 km of range, but sold just 627 units in H1 2026, with zero registrations in June. Chinese buyers increasingly choose based on software, ecosystem integration and price rather than range or charging speed. It is precisely these areas where BYD, Nio and Xiaomi have built a decisive edge which hardware specifications alone can’t offset.

That erosion is concentrated specifically among buyers in the CN¥300,000-500,000 (US$44,300-74,000) bracket defecting to domestic brands, prompting Mercedes to scale back its own medium-term China target to 500,000-600,000 vehicles annually, an explicit acceptance of a smaller, more sustainable footprint rather than a fight to defend former volumes. The company is now shifting more software and research authority to the country under an “in China, for China” approach, betting new MB.EA and MMA platforms can close the technology gap that specifications alone have failed to bridge.

Mercedes is far from alone in navigating this backslide. BMW’s China sales fell 13.4% in 2024 and 12.5% in 2025, Volkswagen lost its long-held China sales crown to BYD in 2024 before slipping to third behind Geely in 2025, and Porsche’s China sales are down 56.2% from 2021 levels. Volkswagen’s own China brand head has acknowledged that some younger buyers now see the marque as “the brand for the parents”.

Källenius’s comments matter because they concede publicly what Mercedes’s own model-by-model results already show privately: this isn’t a cyclical downturn German automakers can outlast by waiting for Chinese pricing to normalise. Rather, it is a structural shift in what Chinese buyers value, and localising R&D or trimming volume targets only serves to manage that decline rather than reverse it.