China ends price wars by banning sales of cars below cost

In an industry-changing move, China has prohibited car manufacturers from selling vehicles below cost, stepping up efforts to curb the prolonged price war sweeping the world’s largest automotive market and spilling into international markets.

In updated guidelines issued Thursday, the State Administration for Market Regulation barred automakers from pricing cars below their total production costs. The definition extends beyond factory-level expenses to include administrative, financial, and sales-related overhead. In short, Chinese automakers can no longer sell their cars at a loss.

By adopting a broader production-cost calculation, the country’s top market regulator has effectively closed a loophole that previously enabled aggressive expansion strategies. For some time now, officials have voiced concern that unchecked discounting has triggered an industrywide race to the bottom.

The new rules also outlaw price coordination between automakers and suppliers and prohibit brands from compelling dealerships to sell vehicles at a loss through strict rebate schemes.

The prolonged pricing battle has reshaped China’s auto sector. It has supported the rapid growth of major players, while putting smaller manufacturers under significant strain as they cut prices to remain competitive. The intense rivalry has also affected the broader supply chain, with carmakers pushing upstream suppliers for discounts and extending payment terms, a practice regulators have also targeted.

In separate data released Thursday, the China Passenger Car Association reported that retail passenger vehicle sales had significantly declined by 13.9% in January compared with the same month a year earlier. The decline was even sharper for new-energy vehicles, including HEVs, PHEVs, and EVs, with a 20% decline from January 2025.

The Chinese government has also revised portions of draft guidelines circulated late last year. Digital car sales platforms will now be encouraged to issue “dual-risk alerts” to both consumers and regulators when vehicles are listed at unusually low prices.

Rules governing software-defined vehicles have also been tightened. Automakers must now inform customers when complimentary software trials are nearing expiration, and features not clearly disclosed at the time of purchase cannot later be converted into paid subscription services.