BMW’s exit from the price war in July set the tone for its recent struggles. In August, the automaker’s sales in China plummeted to just 39,000 units, a 42% drop compared to the previous year. It marked BMW’s lowest sales figure in nearly two years.
While Mercedes-Benz managed to keep its sales steady, its profits have been slipping for several quarters, forcing the brand to take preemptive action. In early September, Mercedes-Benz announced a RMB 14 billion (USD 2 billion) investment in China, coupled with the launch of two new passenger vehicles. So far, the company’s price-for-volume approach hasn’t hurt its core operations, but it is laying the groundwork for long-term adaptation to the Chinese market.
Audi, trailing further behind, is facing mounting pressure—both at home and abroad.
In Brussels, Belgium, thousands of factory workers are protesting the potential closure of Audi’s plant, which produces the Q8 E-tron, the automaker’s first electric vehicle. The facility was also rumored to handle production of the Q4 E-tron, but both models have underperformed in the market. The factory line is at risk of being shut down, with profit targets revised downward and restructuring efforts underway.
Faced with these challenges, Audi is taking unprecedented steps to transform itself. In China, Audi’s most radical move has been partnering with SAIC Motor to develop a new EV – a shift that could redefine the brand’s future.
Historically, multinational automakers handled vehicle development at their headquarters and left mass production to joint ventures in China. But Audi’s new development model with SAIC Motor breaks this mold: the vehicle will be developed by a Chinese team, using a Chinese supply chain, and will initially launch in the Chinese market.
This new strategy is not unique to Audi—it’s becoming a popular choice for multinational automakers like Volkswagen and Mercedes-Benz.
Audi bets big on China
Audi has been steadily deepening its collaboration with SAIC. In September, it finally disclosed detailed information about this partnership.
Song Feiming, CEO of the new project, said that it is entirely separate from the existing SAIC-Audi joint venture, focusing exclusively on developing pure EVs. The project brings together teams from Audi, SAIC Motor, and SAIC Volkswagen.
Audi has already dispatched over 50 technical experts from its headquarters in Germany to Shanghai to participate in the vehicle’s development. The new model is set to debut in November and launch officially next year. Song emphasized that this is not a pilot but represents a new mode of collaboration between Audi and SAIC.
36Kr obtained further details, revealing that the first car under this project, codenamed “Purple427”, is a B-segment pure EV. Developed primarily by a Chinese team, the project’s development cycle has been shortened to less than 18 months—nearly half the time required for Audi’s E-tron series.
A supply chain insider told 36Kr that the project fully integrates SAIC Motor’s supply chain. Nearly all the work is handled by SAIC, with Audi expected to intervene only in a few select configurations. This vehicle will first launch exclusively in China.
Audi’s optimistic stance suggests the company is betting on this new collaboration model—led by a Chinese team, using a Chinese supply chain, and tailored to the Chinese market—to shape its future.
This isn’t Audi’s first experiment with China-focused offerings. In the past, prototype models were designed by Audi’s German R&D center, with FAW-Audi and SAIC-Audi making slight adjustments to match local supply chains before rolling out production in China.
This joint venture model—where Chinese consumers were offered models with a longer wheelbase at a discount of at least RMB 50,000 (USD 7,000)—gave rise to some of Audi’s bestsellers in China, such as the A4L and A6L.
During the internal combustion engine era, Mercedes-Benz, BMW, and Audi profited handsomely from this approach, continually tapping into the Chinese market. Now, Audi is once again pinning its hopes on China.
Sales slump drives change
This new model is primarily being driven by Audi’s faltering sales in China.
In the first half of 2024, Audi’s sales in China fell by 4.9%. While it outpaced the broader high-end car market, Audi’s total sales were only half those of Mercedes-Benz and BMW. With fewer units sold and weaker pricing power, Audi’s revenue, profits, and cash flow are all in decline.
Audi’s EV sales in China have also been lackluster. FAW-Audi’s Q4 E-tron sold 7,471 units in the first half of the year, while SAIC-Audi’s Q5 E-tron managed only 2,200. Combined, these figures fall far short of the monthly sales of leading domestic EV brands.
Yet, China remains Audi’s most important market, contributing over 60% of the brand’s global financial returns, according to its 2023 report.
As a result, Audi is accelerating its transformation in China, with this new project representing its comeback attempt.
Insiders told 36Kr that SAIC is overseeing engineering approval, while Audi’s team is responsible for the production part approval process (PPAP). The vehicle’s entire design, definition, and parts development are led by SAIC, but everything must pass Audi’s final quality checks before production can begin.
This new vehicle will be tailored specifically for Chinese consumers. An industry source told 36Kr that Audi remains confident that quality is its key competitive advantage but acknowledges that Chinese companies better understand the needs of local consumers.
At the crucial cost-control stage, the Audi-SAIC project will fully leverage SAIC’s supply chain.
Under the old joint venture model, FAW and SAIC had to rely heavily on headquarters’ supply chains, with limited room for component substitutions, such as tires. However, this new project has shifted a significant number of components to SAIC’s local supply chain. SAIC now oversees the pricing, procurement, and development processes.
This shift brings a significant cost advantage, allowing the new Audi-SAIC vehicle to be more competitively priced than traditional Audi models.
Audi’s new strategy is also based on parent company Volkswagen’s approach.
Over the past year, Volkswagen has inked a series of agreements with Xpeng Motors, including a collaboration on the development of a new EV electronic and electrical architecture. Both companies have also agreed to co-procure shared components.
Volkswagen has established a new R&D center in Anhui to lead this process. In short, Volkswagen’s future EVs will be developed by a Chinese team, use a Chinese supply chain, and be produced in Chinese factories, with initial sales restricted to China. As Volkswagen’s subsidiary, Audi is essentially following the same game plan.
This new R&D model aims to solve two of Audi’s most pressing challenges: declining sales in China and slower-than-expected progress in electrification.
Will the China-focused model work?
In July, Audi announced an ambitious plan to sell around 800,000 pure electric and plug-in hybrid vehicles annually by 2025. However, in the first half of 2024, Audi had yet to report any plug-in hybrid EV sales, and global EV sales amounted to just 77,000 units.
To meet its targets, Audi will need a breakout product. The mission of the Audi-SAIC project appears to be creating a flagship EV in China, the world’s largest market for new energy vehicles (NEVs).
Song said that this new car won’t just benchmark against Mercedes-Benz and BMW but will also compete with automakers like Nio and Li Auto.
The new vehicle, set to debut in 2025, will incorporate technology from domestic supplier Momenta, offering at least Level 2 autonomous driving capabilities, including urban navigation assistance. Audi’s bet on smart technology is a clear sign of where it sees its future product strength.
This China-focused model is quickly becoming a trend among multinational car brands.
Mercedes-Benz, for instance, is also expanding its Chinese R&D team’s influence. The new pure electric CLA, scheduled for release next year, will be its first vehicle model to use a domestic intelligent driving supplier, offering urban navigation based on data sourced in China. This feature will initially be available only to Chinese consumers. 36Kr previously reported that Mercedes-Benz is considering further localizing its supply chain in China, all driven by its local R&D team.
The needs of Chinese consumers and the rapid growth of the domestic NEV market have outpaced the expectations of international automakers. Ford CEO Jim Farley recently cautioned that this lead can be construed as an existential threat.
As the world’s fastest-growing and largest market for NEVs, China offers foreign automakers little choice but to chase local trends. Developing vehicles with Chinese teams, using Chinese supply chains, and launching them exclusively in China is now seen as the most effective strategy.
However, insiders told 36Kr that Mercedes-Benz’s new CLA, set to debut next year, could start at over RMB 300,000 (USD 42,000). In comparison, B-segment electric sedans like Xpeng’s Mona 03 and the BYD Seal are priced at RMB 119,800 (USD 16,772) and RMB 175,800 (USD 24,612), respectively. Mercede-Benz’s’ limited localization may leave it with little cost advantage.
Still, the pace of innovation in China is staggering. The Aito M7, for example, has undergone one facelift and two new versions in just two years, with cumulative deliveries surpassing 220,000 units.
Chinese companies are delivering new products and technologies at breakneck speed. Even though foreign brands like BMW, Mercedes-Benz, and Audi may launch new vehicles exclusively in China, they can’t escape the slow decision-making processes of multinational corporations. By the time they adapt, Chinese automakers may already be gearing up to release their next models.
Nevertheless, luxury car brands like BMW, Mercedes-Benz, and Audi still wield considerable brand power in China. Whether the new China-focused model can reverse their sales decline will depend on how quickly and thoroughly they can execute their strategy.
This article was written by Xu Caiyu and was originally published by 36Kr.
