German car brands have long enjoyed a strong presence in Southeast Asia, but recent trends suggest their dominance may be waning as the sales of cheaper and increasingly reliable Chinese vehicles surged last year. 

In Singapore, the most significant market for German car brands in the region, the share of new car registrations dropped to 28% in 2024, down from 32% the previous year, according to data from the nation's Land Transport Authority.

Meanwhile, Chinese brands captured 18.2% of new car registrations — a leap from just 5.9% in 2023.

Japanese automobile giants also saw a notable decline in market share.

According to data from the Malaysian Automotive Association, BMW's market share in Malaysia dipped slightly from 1.5% to 1.3% in 2024, while Mercedes-Benz and Volkswagen also recorded declines.

The trend is even more pronounced in the Philippines, where German brands sell only a few hundred new cars annually. BMW's sales dropped by nearly a third, while Volkswagen saw a 15% decline, according to a report by local consultancy AutoIndustriya.

Thailand, Southeast Asia's automotive manufacturing hub, has similarly witnessed a decline in German car sales. However, this decline coincided with a broader contraction of the Thai automotive market, which fell to a 15-year low in 2024.

A broader market shift

The struggles of German automakers in Southeast Asia reflect a broader global shift. In January 2024, BMW reported a 2.3% drop in global vehicle sales, while Mercedes-Benz and Porsche each posted a 3% decrease. Volkswagen, facing strong headwinds, saw its global sales drop by 12%.

China is leading this shift, having dramatically expanded its vehicle exports, particularly in the electric vehicle (EV) market. In 2023, China exported around 4.7 million cars, a threefold increase from 2021, although a third of these cars are manufactured by international brands, according to Citigroup.

Chinese automaker BYD, the world's largest producer of fully electric and plug-in hybrid vehicles, has rapidly expanded its presence in Southeast Asia. In Singapore, it overtook Toyota as the most popular car brand for the first time in 2023. Its sales in the Philippines reportedly skyrocketed by as much as 8,900% over the same period.

Behind the numbers

Despite the declining market share of German brands, analysts urge caution in interpreting the numbers. A BMW spokesperson told DW that its sales in Singapore increased by 49% in 2024, with deliveries of battery electric vehicles (BEVs) rising by 107%.

This growth was likely fueled by the Singaporean government's EV Early Adoption Incentive scheme, which offered significant rebates on registration fees for electric cars.

Additionally, rising costs of Singapore's Certificates of Entitlement (COEs) — permits required for car ownership — have disproportionately benefited higher-end brands. As the cost of COEs surged, luxury car prices rose as well, helping BMW and Mercedes-Benz retain their market niche.

Conversely, declining sales in Thailand appear to reflect an overall slump in the country's automotive industry, which saw a 26% drop in total car sales — the lowest level in 15 years.

Chris Humphrey, executive director of the EU-ASEAN Business Council, told DW that Chinese automakers are primarily targeting the mass market rather than the luxury segment occupied by German brands.

"BMW and Mercedes-Benz focus on the luxury market, whereas brands like Toyota and Honda cater to the mass market. The influx of Chinese automakers has mostly impacted mass-market brands," he said.

Indeed, Japan's Toyota, the best-selling brand in Southeast Asia, is rapidly losing ground. In November, Bloomberg reported that between 2019 and 2024, Japanese automakers experienced the most significant market share losses in Singapore, Thailand, Malaysia, and Indonesia.

Chinese automakers have capitalized on competitive pricing and improved quality. Humphrey emphasized that "Chinese cars' quality is now very comparable to other original equipment manufacturers (OEMs), and this is where pricing becomes a crucial factor."

What can be done?

As Chinese car manufacturers continue their aggressive expansion, some countries have implemented countermeasures. The European Union recently imposed tariffs on Chinese EVs, citing unfair subsidies from the Chinese government that distort international competition.

However, such measures are unlikely to be implemented in Southeast Asia, where Chinese automakers are increasingly localizing production. In July 2024, BYD opened its first Southeast Asian factory in Thailand, a €470 million ($492 million) facility capable of producing 150,000 vehicles annually.

The Economist recently reported that Chinese factories can manufacture nearly 45 million cars annually — about half of all global sales — yet they currently operate at only 60% capacity.

This overproduction suggests that China's export push is far from over, and Southeast Asia will remain a critical market in the coming years.

One potential response for German automakers is to adjust their pricing strategies. In Thailand, for instance, Mercedes-Benz saw registrations decline by 30% in 2024, in line with the overall market downturn.

Recently, several Chinese brands have aggressively cut prices to gain market share. However, Mercedes-Benz Thailand CEO Martin Schwenk told local newspaper The Nation this month that his company would not follow suit.

"If we make the car overly aggressive in pricing, we damage every owner's position. We damage the brand," he asserted.

Despite the challenges, there are some positive developments for German manufacturers. Volkswagen Group's subsidiary, Skoda Auto, announced plans to complete construction of a €475 million vehicle assembly plant in Vietnam by early 2025. This facility would be able to produce 120,000 vehicles annually, strengthening the company's foothold in the region.

Edited by: Srinivas Mazumdaru