In Chinese dealerships, “prices never seen before” signs have set the standard. Now, however, the regulator says enough is enough. Beijing has put it in black and white that cars can no longer be sold below the cost of production- not just factory cost, but also considering administrative, financial and commercial expenses-in an attempt to curb a price war that in three years has burned through tens of billions of yuan and disrupted the entire supply chain.
New guidelines from Beijing’s State Administration for Market Regulation also target deceptive promotion tactics, price pacts between manufacturers and suppliers, and enlist digital platforms as real-time “sentinels”: if a price list appears abnormally low, it triggers a double warning to consumers and authorities.
In parallel, comes a crackdown on on-board software: an end to hidden subscriptions, a requirement to inform when free trials expire, and a stop to turning features not declared at the time of purchase into paid services. Finally, manufacturers are prohibited from forcing dealers to sell at unprofitable prices through various tricks and forcing.
In trouble for small producers
The years-long price war has transformed China’s auto industry, fueling the rise of giants like BYD, but has pushed smaller manufacturers into serious trouble. Competition has spread throughout the supply chain, with automakers demanding discounts from upstream suppliers and extending payment terms.
Yet, on the ground, the chase for “wild” discounts has not died down. BMW has realigned official price lists on 31 models, with deep cuts down to the i7 M70L electric flagship and a 24 percent reduction for the iX1 eDrive25L, explaining that this is “regular price management” to bring them closer to real transaction value. Tesla avoids direct rebates and pushes credit: low-rate plans for up to seven years, even zero-rate options for five. Xiaomi is offering three-year interest-free loans and upgrade packages; Chery and others are pushing with factory scrappage incentives, while Volkswagen and GM joint venture dealers are relaunching with fixed-price offers. So the competition continues, but it shifts from price to incentives, to the “value war” evoked by insiders.
Less subsidies
The macro environment does not help. In January, passenger car sales in China slumped 19.5 percent year-on-year to 1.4 million, the steepest decline since February 2024. Electric vehicles and plug-in hybrids, hitherto locomotives of the market, posted a minus 22.9 percent. The calendar effect of the Lunar New Year matters, but it is not enough to explain the coldness of consumers, squeezed by a prolonged housing crisis and a weak job market. Add to that the change of pace in incentives – the new scrappage scheme limits subsidies for cheaper cars – and the introduction from 2026 of a 5 percent tax on purchases of new energy vehicles, after years of exemption: the cost of entry goes up just as family budgets shrink.
Then there is the regulatory pressure on safety: from the banning, as of 2027, of “retractable” door handles to possible limits on the acceleration of electric cars. And on the supply side weighs overcapacity, which pushes manufacturers to “move” cars regardless of the situation, triggering a vicious cycle of markdowns, thin margins, and demands for discounts along the supply chain. This is the Beijing government’s central fear: a spiral that forces auto parts manufacturers to switch to cheaper, lower-quality parts and squeeze workers’ wages.
If domestic demand falters, the safe exit is overseas. China’s auto exports jumped in January, and Chinese automakers are looking abroad for growth: BYD is targeting 1.3 million cross-border sales in 2026, while Geely is working on production in Europe.
