China's Price War Doesn't Matter (Tech Does)

Welcome to Issue #89 of The German Autopreneur.

Everyone talks about China's price war. 30% discounts. Manufacturers undercutting each other. Razor-thin margins. A bloodbath.

But McKinsey's new China Auto Consumer Study shows: That's the wrong story.

McKinsey says: For the first time in history, Chinese buyers are defining the direction of a global industry. What happens there rewrites the playbook for everyone.

Today we'll look at those new rules. What really drives buying decisions in China. And what this means for the rest of the world.

Tech Matters 3x More Than Price (6x for Premium Buyers)

The price war is real. But how much does it really influence buying decisions?

McKinsey measured how much price cuts increase purchase intent.

The result: Discounts increase willingness to buy by only 3.6%.

Now here's the twist.

They also measured: How much does better technology increase purchase intent? New models. Fresh features. Faster updates. Better software.

The result: Tech increases purchase intent by 10.8%.

Tech matters 3x more than price.

For wealthy buyers in Tier-1 cities, the gap widens. There, tech matters 6x more than price.

The higher the income, the more important technology becomes.

This completely contradicts the narrative about China's brutal price war.

Yes, the price war is happening. But it's not driving decisions.

Chinese buyers want tech above all.

Simply put: Better tech at the same price beats worse tech at a discount.

Why German Brands Struggle in China

German brands still have a good reputation in China.

The problem: In the EV segment, that reputation no longer matters.

Why? The buying criteria completely changed.

For ICE buyers, brand trust ranks #1. For EV buyers? Brand trust drops to #5.

What matters now: Range. Charging speed. Interior experience.

And how often do German brands even get considered?

In the overall market, they perform well. But looking at just the EVs? Their performance collapses.

People know the brands. But they’re not buying them

And: Half of Chinese buyers won't pay more for a German EV than a Chinese one. Only 3% would pay a 20%+ premium.

So German brands can't charge premium prices for EVs anymore.

So how do they sell at all?

Discounts.

McKinsey asked German premium EVs buyers about their main purchase reasons. "Attractive price through discounts" ranked #2 in 2024. It was #4 in 2023.

The message: German premium EVs sell on discounts. Not tech. Not brand.

And that’s bad news:

Discounts are now the biggest sales lever in China. But those same discounts destroy premium status. The brand loses value. So it needs bigger discounts. Which weakens the brand more.

Some manufacturers are trying partnerships instead. VW with Xpeng. Audi launched a sub-brand with SAIC.

The idea: European brands plus Chinese tech.

But this doesn't automatically work. Only 40% of buyers would consider such collaborations. And only 1% would pay a more than 20% premium for it.

Slapping a European badge on Chinese tech isn't enough. You need real synergies. Value beyond the sum of parts.

Plug-in Hybrids and Range Extenders Make a Comeback

32% of pure EV owners regret their purchase. In 2023, it was 22%.

Compare that to plug-in hybrids and range extenders. Only 10% regret buying them.

The main reason? Charging.

Infrastructure hasn't kept pace with EV growth. Comparing growth: There are over 12 EVs per charging point. Wait times keep increasing. People get frustrated.

But here's the key insight: Beyond charging, EV owners are more satisfied than ICE owners. With the overall experience. With total costs. With driving pleasure. With smart cockpit.

So the problem isn't EV technology. It's the charging infrastructure.

Plug-in hybrids and range extenders solve this. All the EV benefits. None of the charging hassles.

The numbers show it: 81% of potential EV buyers now consider plug-in hybrids or range extenders. In 2023, it was 71%.

Premium Features Become The Standard

Meanwhile, tech is getting democratized.

Features that were luxury two years ago? Expected in all segments now.

3 out of 4 buyers want these in every price segment: Extra-long range. Ultra-fast charging.

Urban autonomous driving is expected by 3 out of 4 buyers in higher price segments. In cheaper segments by 2 out of 4.

These features are deal-breakers. If they're missing, customers won't buy.

This means: Carmakers have no choice. They must include these features as standard. Across all segments. Even in budget models.

The baseline for what buyers expect from a car has completely reset.

So how do you stand out?

Premium interior. Multiple screens. Zero-gravity seats. Exceptional driving dynamics. Air suspension. Rear-wheel steering.

And also: Scenario-based intelligence.

Example: "Hey car, stop at the coffee shop over there." Or: "Hey car, slow down."

These are the features that now differentiate. The real user experience in daily life.

Premium is being redefined. It's no longer just about materials and build quality. It's about intelligent solutions for real use cases.

Chinese Brands Own the Tech Narrative

This tech shift has another effect. Chinese brands are now seen as technology leaders.

German brands still win on driving pleasure, safety, and quality.

In tech, Chinese brands have taken the lead.

Which brands consumers associate with certain attributes:

• EV powertrain: 9 out of 10 top brands are Chinese

• Autonomous driving: 8 out of 10

• Smart cockpit: 8 out of 10

• Energy efficiency: 6 of 10

• Comfort: 6 of 10

• Safety: 4 of 10

• Quality: 4 of 10

Chinese brands dominate new categories. And they're catching up fast in traditional ones.

Brand awareness tells the same story.

McKinsey asked: Which brand first comes to mind for EVs?

The top 10: Almost exclusively Chinese brands. And Tesla.

German premium brands ranked far behind.

They're known as premium brands. But not as EV brands.

That's the problem. When consumers think of EVs, they don't think of German manufacturers. They think of Chinese ones.

My Take

The McKinsey study reveals something crucial: The industry misread China.

Everyone thought it was about price. It's actually about technology.

China created a new product category: the intelligent EV. Defined by tech and features. Not by drivetrain.

What does this mean for German automakers?

1) Exit the Price War

The only way out? Focus on tech. Quarterly feature drops. Fresh features. Better software.

Tech matters 3x more than price. And it protects your brand’s value.

2) Make Tech Tangible

German brands have zero presence in the EV segment. When people think of EVs, they think of Chinese brands.

Slogans won't change that. Action will. Develop strong tech and demonstrate it. Test drives showcasing intelligent driving assistance. Influencer content showing real daily scenarios. Tech must become a reason for buying.

3) Treat Hybrids as Intelligent EVs

Plug-in hybrids and range extenders aren't ICEs with different drivetrains. They're part of the intelligent EV category.

Buyers expect the same tech as pure EVs. Market them that way.

McKinsey puts it simply: "Just as smartphones globally replaced feature phones, intelligent EVs won’t remain in China."

In other words: What happens in China today is everywhere tomorrow. Ignore this, and you don't just lose China. You lose everywhere.

🔗 McKinsey China Auto Consumer Insights 2025

That's all for today.

Feel free to reply to this email with your thoughts.

Until next week,
— Philipp

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