China's Luxury Tax Has Hit One Premium Brand Harder Than Others | Carscoops

      The mid-luxury market is already facing challenges in China, with sales decreasing by half in the first half of the year.

      The Chinese government has implemented an additional luxury tax that targets more vehicle categories. The price threshold has been lowered from $182,600 to $126,400, and electric vehicles are no longer exempt from this tax.

      Many foreign premium models, including those from Mercedes, are now subjected to this updated tax.

      Foreign automakers were already struggling in China's luxury segment, but the recent tax modifications are expected to complicate matters further. In what appears to be a strategic move against high-end imports, China's Ministry of Finance has introduced a new tax for vehicles priced over €108,000 (approximately $126,400 at current exchange rates), regardless of whether they are gasoline or electric.

      Previously, this "consumption tax" applied only to combustion-engine vehicles priced at €156,000 ($182,600) and above. By lowering the price threshold and including electric vehicles, the revised policy seems to increase the pressure on foreign brands like Mercedes and Porsche. Meanwhile, several local competitors offer similar models at lower prices, keeping them below the tax limit.

      German luxury electric vehicles are now particularly targeted.

      According to the German newspaper Handelsblatt, the updated tax is based on the final sales price of the vehicle, including any optional features. The tax is due at purchase, making premium trims and additional features even more expensive.

      Several imported models are directly impacted. The Mercedes EQS begins at ¥910,500 ($126,900), the S-Class at ¥962,600 ($134,100), and the Porsche Taycan at ¥918,000 ($127,900), all falling under the new tax category. The Porsche Panamera, priced from ¥1,138,000 ($158,600), was already subject to the higher consumption tax under the previous regulations.

      Sales in the upper segments were already declining.

      Even prior to the policy adjustment, luxury vehicle sales in China were sharply decreasing. Models priced over ¥1 million ($140,000) experienced a substantial decline, nearly halving their sales in the first half of 2025 after a 34% drop in 2024. Analysts attribute this ongoing downturn to growing economic uncertainty, which has made Chinese consumers more hesitant about significant purchases.

      Li Yanwei from the Chinese Automobile Dealers Association noted that only about 37,000 vehicles sold in the first half of 2025 fall under the new tax criteria. Nearly half of these sales came from Mercedes (48%), with Land Rover (23%), Porsche (18%), Lexus (8%), and Bentley (3%) contributing to the rest.

      To provide context, China's overall vehicle sales reached 15.7 million units in the first half of 2025, marking an 11.4% increase compared to the same period in 2024. The luxury models affected represent only a small portion of that total, but their significance (and the high profit margins associated with them) makes the tax changes noteworthy for foreign brands.

      China’s state-run Xinhua news agency suggests this action aims to reduce the number of imported luxury cars. However, according to Deng Jianquan, chief automotive analyst at Cinda Securities, the added tax is unlikely to dissuade affluent buyers. Imported luxury vehicles in China already face a 40% tax, in addition to a 15% customs duty, making the latest increase just another burden on their overall cost.

      Earlier this year at the Shanghai Auto Show, Mercedes CEO Ola Källenius acknowledged the growing competition from local automakers in the premium market. He emphasized that Mercedes would avoid price wars, focusing instead on maintaining stable residual values.