China bans below-cost car sales to end prolonged price war
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The years-long price war has transformed China’s auto industry, fuelling the rise of giants like BYD while pushing smaller manufacturers to the brink.
ST PHOTO: JOYCE ZK LIM
BEIJING – China has banned carmakers from pricing vehicles below cost, intensifying its crackdown on a persistent price war that has engulfed the world’s largest auto market.
In a final set of guidelines released on Feb 12, the State Administration for Market Regulation effectively banned automakers from selling vehicles below their total cost of production.
That includes not just a company’s factory floor expenses, but administrative, financial and sales overheads.
By using a broad definition of production cost, China’s top market regulator is closing a loophole that helped companies’ aggressive sales expansion but has drawn concerns from officials about an industrywide race to the bottom.
It has also outlawed price-fixing between automakers and suppliers, and prohibited brands from forcing dealerships into money-losing sales through punitive rebate programmes.
The years-long price war has transformed China’s auto industry, fuelling the rise of industry giants like BYD and Tesla, while pushing smaller manufacturers – pressured to implement price cuts to keep up – to the brink.
The cut-throat competition has rippled through the entire supply chain, with automakers asking for discounts from upstream manufacturers and extending payment times – a practice that regulators have also sought to stamp out.
The regulator also refined some guidelines from the consultation draft released late in 2025.
That includes classifying digital car-buying platforms as real-time market monitors, which will be encouraged to issue “dual-risk alerts” to both consumers and regulators when a merchant lists a car for an abnormally low price.
Regulations around software-defined vehicles were also tightened to mandate that carmakers notify their customers when their free software trials are about to expire.
Features not explicitly disclosed at the time of purchase are also barred from being turned into paid subscriptions later.
Despite Beijing’s efforts to stamp out aggressive discounting, including a recent warning that automakers face “severe penalties” for continuing the practice, the new year has brought a new round of price cuts. BLOOMBERG
