Palladium coated copper (PCC) wire is an emerging bonding wire. There are relatively few studies on the effect of palladium plating thickness and temperature on its bonding performance. In order to investigate the effects of three parameters, namely palladium plating thickness, chip preheating temperature and the free air ball (FAB) initial temperature, on the bonding performance of PCC wires, this paper establishes a transient nonlinear finite element analysis model of thermal coupling between bare copper wires and PCC wires, and simplifies the whole bonding process into two stages of impact and ultrasonic vibration to carry out the experimental simulation. Firstly, the Taguchi orthogonal test method was adopted to obtain the ranking of the degree of influence of the three factors on the bonding results, and the optimum palladium plating thickness and FAB initial temperature of 100 nm and 100 °C were derived, respectively. Then the PCC wires with 100 nm palladium plating thickness were selected, and the bare copper wires were used as the reference, and multiple one-factor simulation experiments were carried out under the condition of changing the chip preheating temperature only. The simulation results show that the FAB and pad stress levels in the bonding results of the PCC wires are significantly higher than those of the bare copper wires, but the GaN layer stress is less than that of the bare copper wires. Moreover, there is an approximate parabolic relationship between the maximum stresses of pad and GaN layer and the preheating temperature of the chip. In the bonding results of bare copper wire, there is also an approximate parabolic relationship between the maximum stress of FAB and the chip preheating temperature. This parabolic relationship allows a prediction of the optimum chip preheating temperature. Selecting the appropriate palladium plating thickness and controlling the appropriate FAB temperature and chip preheating temperature can improve the bonding quality, and this numerical simulation work can provide a reference for the selection of palladium plating thickness and temperature parameter regulation of PCC wires.