Introduction

China's luxury car market is poised for a seismic shift in the near future.

"Do second-tier luxury brands still hold their prestige?"

Recently, I engaged in a conversation with a friend contemplating a car purchase, particularly focusing on luxury brands. Should one opt for traditional luxury stalwarts like BBA (Benz, BMW, Audi), or lean towards independent new energy high-end brands such as NIO, Li Auto, Huawei, or even Xiaomi?

Our discussion heated up over brand value, product capabilities, and pricing. As the conversation drew to a close, I suggested, "If price is a concern, consider second-tier luxury brands. They offer significant discounts and are worth exploring." My friend promptly interrupted, posing the question that serves as this article's opener.

This rhetorical question encapsulates consumers' current perception of second-tier luxury car brands.

As the automotive industry advances towards electrification and intelligence, China's auto market is experiencing an unprecedented structural transformation. Traditional consumer perceptions are being reshaped, and new consumption paradigms are emerging. Against this backdrop, second-tier luxury brands, including Lexus, Cadillac, Volvo, Lincoln, and Jaguar Land Rover, are facing stern market tests.

Luxury Perception: A Paradigm Shift

In the past, the era of fuel vehicles, second-tier luxury brands often appealed to budget-conscious consumers seeking luxury experiences with lower entry prices and higher configurations compared to BBA.

For instance, Lexus captivated quality-conscious consumers with its reliability and imported status; Volvo emphasized "safety" and "environmental protection," resonating with users who prioritize family and sustainability; Cadillac appealed to younger demographics with its American luxury and sporty performance; and Lincoln enhanced cost-effectiveness, comfort, and service experience through localization.

At that time, while consumers perceived second-tier brands as less luxurious than BBA, especially in business and social settings where brand symbolism mattered, these brands still attracted a significant consumer base due to their high cost-effectiveness, competitive pricing, and superior configurations.

However, China's luxury car market is now undergoing a profound transformation. As BBA grapples with price wars and struggles to maintain profits, second-tier luxury brands are silently teetering on the brink, with even less room for error.

These brands often offer terminal discounts exceeding 100,000 yuan, dealer inventory ratios nearing the 2.5 warning line, and factory capacity utilization rates below 40%. These figures reflect a restructuring of the market value system for second-tier luxury cars. It can be said that, under the dual impact of the new energy revolution and consumption upgrades, second-tier luxury brands find themselves in a precarious position, "squeezed from above and beaten from below".

In 2024, China's luxury car market reached 4.5 million units, accounting for 18.6% of the total passenger car market. However, market growth significantly slowed down to only 8.5% year-on-year, a decrease of 3.2 percentage points from 2023. This indicates that while the luxury car market continues to grow, the pace has markedly slowed, and the market is becoming increasingly saturated.

From the perspective of brand market share changes, the share of first-tier luxury brands BBA declined from 75% in 2020 to 68% in 2024. Similarly, the market share of second-tier luxury brands represented by Lexus, Cadillac, and Volvo also dropped from 17% in 2020 to 12%. This underscores intensified market competition and the dispersion of market share among more brands.

Moreover, in the auto market where price wars have become the norm, the phenomenon of price inversions among luxury brands is intensifying, directly compressing the premium space for luxury cars.

More critically, consumption concepts are evolving. Especially for new-generation consumers, the importance of "technological configurations" and "intelligent experiences" is gradually surpassing traditional luxury attributes. For example, there is growing market buzz around Huawei's high-end intelligent driving system, NIO's battery swap stations, Xiaomi's ecosystem, and Li Auto's intelligence, all affirming this trend.

This shift is also evident in the terminal market. Emerging brands like NIO, Li Auto, and Hongmeng Intelligence are continually increasing their market share in the above 400,000 yuan segment. The surge in market share of emerging brands in the high-end market further accelerates changes in the market landscape.

Fighting for Survival

Against this backdrop, second-tier luxury brands, already perceived as less luxurious than BBA, will encounter even more encirclement from domestic new energy vehicles. Consequently, these brands must fight for survival.

For instance, the transition to electrification is a representative path for many. However, while electrification transformation serves as a lifeline for most brands, reality is far harsher than ideal.

In November 2022, an intriguing photo circulated online, depicting a banner outside an Audi 4S store proclaiming, "Audi also has new energy vehicles." Notably, in the fuel vehicle era, Audi was almost omnipotent, but in the electric vehicle race, even with transformation efforts, it faces grievances over poor sales and overlooked branding.

This holds true for mainstream luxury brands and even more so for the second-tier luxury camp.

After launching new energy vehicles, second-tier luxury brands sometimes experience monthly sales of less than 100 units in China, price cuts upon launch, and other challenges. These cases expose the difficulties faced by traditional luxury brands in the electric vehicle race.

As a result, many second-tier luxury brands are compelled to join the price war. But the question arises: Where does the living space for second-tier luxury brands lie when BBA prices drop to the hundreds of thousands?

However, second-tier luxury brands have not ceased exploring solutions.

For example, after years of hesitation, Lexus decided to establish a factory in Shanghai, aiming to reduce costs through localization, only to encounter the encirclement of price wars among new energy brands. Lincoln opted to streamline its frontline and pursue profits, while Cadillac had to resort to telling a sentimental brand story... These strategies reflect the delicate balance second-tier luxury brands must strike between scale effects and brand tonality.

Additionally, adopting a niche or unique approach is another attempt. For instance, Land Rover Defender achieved a rebound through the hardcore off-road segment, Polestar attracted specific groups with its environmental protection concept, and Cadillac introduced the all-new CT5 at the Zhejiang Circuit. However, this differentiation strategy demands a high level of precision in market segmentation from the brand.

In summary, amidst this unprecedented change, the survival rule for second-tier luxury brands has shifted from "how to compete" to "how to exist." Brands that can break the traditional luxury paradigm and reconstruct user value perception are more likely to secure a place in the new energy era.

It is certain that China's luxury car market will undergo a brutal reshuffle in the future, and some second-tier luxury brands may fade into history. Those who can truly decipher the luxury code of the new era are more likely to endure.