By Nick Carey, Victoria Waldersee and Brian Thevenot

SHANGHAI, April 24 (Reuters) - Foreign automakers in China face an increasingly urgent challenge at this year's Shanghai auto show - winning back Chinese buyers while their domestic rivals churn out slick, affordable electric vehicles at a relentless pace.

The world's biggest automakers have steadily lost market share in recent years as Chinese-brand sales have soared. The destruction of legacy-brand equity is spreading fast from low- and mid-priced segments to luxury automakers now struggling to match Chinese rivals with superior EV drivetrains and a dizzying array of high-tech interior features.

Germany's Porsche p911_p.DE - among the world's most powerful premium brands for decades - has become the new poster child for legacy automaker decline in China. Its sales in the country plunged 42% in the first quarter, an acceleration of previous losses since the legendary sports-car maker hit record China annual sales of 95,671 just four years ago - nearly a third of its 2021 global total.

Unlike other Volkswagen Group VOWG.DE brands VW and Audi, which showcased five new electric models at the Shanghai show, Porsche retreated to its combustion-engine heritage. The automaker unveiled two limited-edition variants of its 911 in a display surrounded by vintage examples of the legendary sports car. A lighted sign read: "There is no substitute."

Chinese customers aren't buying it. Instead, they're buying increasing futuristic luxury and sport substitutes from domestic competitors including BYD's 002594.SZ Yangwang brand and Xiaomi 1810.HK, an electronics and appliances giant that only entered the car business last year. Xiaomi's first car, the electric SU7 sport sedan, caused a sensation with Porsche-inspired styling at a much lower price.

When Xiaomi introduced an absurdly fast, 1,548-horsepower SU7 Ultra variant in February priced from 529,900 yuan ($72,591), it said it racked up about 10,000 pre-orders in two hours - slightly more than the first-quarter China sales of all Porsche models. The least expensive Porsche 911 sells for 1.468 million yuan, or $201,170, in China and has 394 horsepower, according to Porsche's website.

"Porsche is done" in China, said Tu Le, founder of consultancy Sino Auto Insights.

Porsche is hardly alone among foreign automakers in losing sales to Chinese rivals, which in many cases are not yet profitable.

Foreign automakers "understand the challenge," said Yu Zhang, managing director of Shanghai-based consultancy Automotive Foresight. "But they're still not moving fast enough to solve it."

In September 2022, investor faith in Porsche's storied brand was so strong that, shortly after its initial public offering, its value soared past its vastly larger parent Volkswagen.

The automaker's shares are now down 44% from its stock market debut and 21% year-to-date. Porsche's China sales have fallen for three straight years.

Volkswagen and Porsche CEO Oliver Blume dismissed concerns about declining Porsche sales in China as he addressed reporters after unveiling VW and Audi models on Tuesday ahead of the Shanghai show.

"We don't care about the volume," Blume said, adding he was more concerned about keeping prices high - at a level "appropriate for Porsche."

Blume denied Porsche competed directly with Chinese brands such as Xiaomi and Yangwang: "They are cool cars," he said, but they lack Porsche's "driving ability" and play in a "lower pricing segment."

Blume said the company might abandon the EV segment entirely in China, where more than half of new cars sold are now EVs and hybrids. Porsche sells two EVs here, the Taycan and Macan. It does not report specific model sales by country but Blume said Porsche's EV sales in China were "relatively low."

"We will see in the next two to three years whether Porsche exists as an electric brand here," he said.

The core attributes that have historically made a Porsche a Porsche - the throaty roar of a 911's flat-six-cylinder engine, for instance - don't have the same appeal in China as in other Porsche markets.

"The concept of Porsche as a golden brand means nothing to younger generations in China," said Bo Yu, China country manager at research firm JATO Dynamics.

TURNING UP THE VOLUME

The Chinese automakers that are increasingly moving into high-end segments do care about sales volumes.

Xiaomi sold 137,000 SU7s last year, more than double Porsche's total full-year China sales of just under 57,000, out of global sales of 310,718. Last month, Xiaomi raised its vehicle-sales target for 2025 to 350,000.

Small premium Chinese EV maker Nio 9866.HK saw sales rise 38.7% last year to 221,970 vehicles. CEO William Li said Nio expected to double its volume this year - calling it a "harvest year" - as it introduces nine new or updated EV models.

The rapid growth of China's industry has translated directly to steep sales declines for foreign automakers across all segments.

"They won't get that market share back," said Andrew Fellows, global head of automotive and mobility at technology consultancy Star.

Some are nonetheless fighting to remain relevant in China. Financially troubled Nissan 7201.T said at the show it will invest an additional $1.4 billion in China and launch 10 new vehicles in the coming years to reverse its sales slide.

"The Chinese brands were too fast, to be honest" in releasing compelling models, said Nissan China chief Stephen Ma. "Now, I think we have reset."

BRIGHT SPOT

General Motors GM.N is also rebooting after recording $5 billion in charges on its China operations in December. Its comeback efforts hinge largely on its premium Cadillac brand, which displayed four all-electric models in Shanghai.

Buick's GL8 has been one bright spot for GM in China. It remains a leader in China's multi-purpose vehicle, or MPV, segment, more commonly called minivans in the United States.

MPVs are prized by Chinese consumers as both family haulers and chauffeured luxury vehicles for executives.

Buick displayed a new concept GL8 that brand design executive Matt Noone said will come only in EV or hybrid variants and loaded with interior technology to counter Chinese competitors, including reclining and massaging seats and a "fragrance system."

Buick aims to fight off MPV competitors from BYD's 002594.SZ Denza brand, Li Auto 2015.HK and Xpeng 9868.HK, which launched a redesigned X9 MPV featuring a built-in refrigerator ahead of the Shanghai show.

Geely's Zeekr just launched the 009 Grand, a four-seater MPV that also has a fridge, along with a 43-inch (109 cm) wide TV and 24-karat gold Zeekr logos because, as one spokesperson put it, the "Chinese love gold."

"We're under attack here," Buick's Noone said. "We need to maintain our GL8 dominance before it’s taken from us."

"And it's a race against the clock.”

($1 = 7.2998 Chinese yuan renminbi)

(Reporting by Nick Carey, Victoria Waldersee and Brian Thevenot in Shanghai; Editing by Jamie Freed)

((nick.carey@thomsonreuters.com; +44 7385 414 954;))