The mid-luxury segment is already weak in China, with sales halving in the first half of the year
- The Chinese government introduced an additional luxury tax targeting more vehicle segments.
- The price threshold drops from $182,600 to $126,400, and EVs are no longer exempt.
- More foreign premium models, including from Mercedes, are now affected under the revised tax.
Foreign carmakers were already on the back foot in China’s luxury segment, but the latest tax changes are set to make things even harder. In what looks like a calculated nudge against high-end imports, China’s Ministry of Finance has introduced additional taxation for vehicles priced above €108,000 (equal to $126,400 at current exchange rates), regardless of whether they’re powered by gasoline or electricity.
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Previously, this so-called “consumption tax” only applied to combustion-engine models priced at €156,000 ($182,600) and above. By lowering the threshold and including electric vehicles, the updated policy seems to place added pressure on foreign brands like Mercedes and Porsche. In contrast, many domestic competitors offer similar models at lower prices, keeping them below the tax bracket.
German Luxury EVs Now Squarely in the Crosshairs
As reported by German newspaper Handelsblatt, the revised tax is calculated based on the vehicle’s final sales price, including any optional equipment. The fee is due at the time of purchase, making premium trims and added extras even more costly.
Several imported models are directly affected. The Mercedes EQS currently starts at ¥910,500 ($126,900), the S-Class at ¥962,600 ($134,100), and the Porsche Taycan at ¥918,000 ($127,900), all of which now fall within the taxed category. The Porsche Panamera, priced from ¥1,138,000 ($158,600), had already been subject to the higher consumption tax under the earlier rules.
Sales Already Struggling in Upper Segments
Even before the policy change, luxury vehicles were seeing a sharp decline in China. Models priced over ¥1 million ($140,000) saw their sales nearly cut in half during the first half of 2025, following a 34% drop in 2024. Analysts attribute the ongoing slump to increasing economic uncertainty, which is making Chinese consumers more cautious about big-ticket purchases.
According to Li Yanwei of the Chinese Automobile Dealers Association, only about 37,000 vehicles sold in the first half of 2025 fall under the new tax criteria. Nearly half of these came from Mercedes (48%), with Land Rover (23%), Porsche (18%), Lexus (8%), and Bentley (3%) making up the rest.
To put those numbers in perspective, China’s overall vehicle sales reached 15.7 million units in the first half of 2025, an 11.4% increase compared to the same period in 2024. The affected luxury models represent just a small fraction of that total, but their symbolic weight (and the high profit) margins they carry) makes the tax change significant for foreign brands.
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China’s state-run Xinhua news agency suggests the move is intended to curb the presence of imported luxury cars. But according to Deng Jianquan, chief automotive analyst at Cinda Securities, the extra charge is unlikely to deter wealthy buyers. Imported luxury vehicles in China already face a 40% tax, plus an additional 15% customs duty, meaning this latest increase adds to an already steep total cost of entry.
Earlier this year at the Shanghai Auto Show, Mercedes CEO Ola Källenius acknowledged the rising challenge from local automakers in the premium space. He emphasized that Mercedes will stay clear of price wars, instead focusing on stable residual values.
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