Mercedes S-Class Faces 35% Price Gap vs Chinese Luxury Rivals
Mercedes faces 35% price premium vs Huawei's Maextro as China's luxury car market contracts 80%. How German automakers defend positioning amid local competition.
Mercedes-Benz launched its refreshed S-Class sedan in China on January 26, 2026, pricing the flagship model between 962,600 and 2.04 million yuan (US$135,000 to US$286,000) as German automakers confront an 80% contraction in China's luxury car market. The updated model enters a market where Huawei's Maextro S800 sells for 708,000 yuan (US$129,000), creating a 35% price premium Mercedes must defend through hyper-connected features and brand heritage.
Luxury Market Collapse Reshapes Competitive Landscape
China's premium sedan segment has experienced a dramatic reversal. The luxury car market priced above 500,000 yuan collapsed from 52.4% market share in 2022 to just 17.7% in 2025, according to industry sales data. Volkswagen CEO Oliver Blume confirmed the severity, stating "the entire premium and luxury market in China has collapsed by around 80% in a short period of time, and we do not expect a recovery."
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Mercedes Asia sales declined 16% in 2025 to 747,000 units, while domestic competitors captured volume through aggressive pricing. BYD's Yangwang U8 topped ultra-luxury sales rankings with average prices around 358,000 yuan (~US$50,000), undercutting the S-Class by 60%. The Maextro S800 has already surpassed the S-Class, Porsche Panamera, and BMW 7-Series in Chinese luxury sedan rankings with features like crystal seat adjustment buttons and automatic doors.
Chinese rivals demonstrate clear cost advantages through scale. Li Auto's L8 SUV, priced around 350,000 yuan (US$49,000), sold 43,613 units between January and July 2024, compared to 24,623 units for Mercedes' GLE despite the German model costing twice as much. BMW's localized X5, priced at 615,000 yuan (US$86,000), achieved 53,910 sales during the same period, pressuring Mercedes to accelerate local production.
Technology and Localization as Defense Strategy
Mercedes is betting on digital differentiation to justify premium pricing. The 2025 S-Class features dual 13.1-inch rear screens for videoconferencing, AI-powered voice controls from OpenAI, Microsoft, and Google, and L2+ autonomous driving capabilities. The company positions these features as essential for chauffeured executives who treat the sedan as a mobile boardroom, a use case less emphasized by domestic competitors focused on driver-centric technology.
The German automaker committed RMB 14 billion (~US$2 billion) to China localization initiatives aimed at shortening development cycles and sourcing local suppliers. This investment responds to competitive pressure from brands like Hongqi, whose Guoya sedan matches Maybach S680 pricing at US$255,000 versus US$241,000 with comparable exterior design, though trailing in powertrain refinement.
The S-Class launch includes over 150 customization options, new V8 and six-cylinder engines, and plug-in hybrid variants. Mercedes reported 9% growth in plug-in hybrid electric vehicle sales in 2025, pivoting away from pure electric models after disappointing EQS sedan performance. An all-electric S-Class remains planned for later this decade as the company balances combustion engine demand with electrification mandates.
Premium Brand Resilience Test
The S-Class relaunch represents CEO Ola Kallenius's upmarket strategy at a critical juncture. Real estate slowdowns have dampened luxury spending among Chinese executives, while domestic manufacturers achieve near-parity in comfort and technology at significantly lower price points. AITO's M9 SUV sold 151,000 units annually in the premium segment, breaking the traditional dominance of BMW, Benz, and Audi.
Mercedes faces a fundamental question confronting all premium brands in Asian markets: whether heritage, engineering reputation, and incremental feature advantages justify substantial price premiums when local competitors offer 60% to 80% of the value at half the cost. The answer will determine not just S-Class sales, but the viability of European luxury positioning across China's rapidly evolving automotive landscape.
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