Year in Review: Toxic Competition Drives China to Rein in Auto Price War

[para. 1] China intensified its efforts to curb excessive competition in its auto market in 2025, culminating in a series of policy moves intended to end a prolonged price war. This war, ongoing for more than two years, has severely affected automakers, suppliers, and dealerships, resulting in financial strain throughout the sector [para. 1].

[para. 2][para. 3] The context for these measures is China’s broader economic transition toward new growth drivers, which has left the auto sector navigating a complicated environment domestically and internationally. In March 2025, the National Development and Reform Commission (NDRC), the country’s top economic planner, warned that disorderly competition within the domestic auto industry could erode profits in the short term and, over the longer term, threaten innovation, product quality, and corporate competitiveness. This warning signaled a regulatory campaign aimed at combatting “involution-style” competition—characterized by excessive rivalry, frequent price cuts, and diminishing profit margins [para. 2][para. 3].

[para. 4][para. 5] By May 2025, the China Association of Automobile Manufacturers (CAAM) publicly criticized unnamed carmakers for inciting a fresh wave of price cuts. Soon after, the Ministry of Industry and Information Technology reinforced its commitment to fighting excessive competition. These anti-competition initiatives produced measurable results: major automakers reported quarter-on-quarter increases in gross profit margins in their third-quarter financial statements, with some brokerages attributing the improvement to an upward adjustment of vehicle prices [para. 4][para. 5].

[para. 6][para. 7][para. 8] The campaign also targeted financial practices underpinning aggressive discounts, notably the industry’s routine extension of payment cycles to suppliers, which allowed more capital to be channeled into discounts. In June, 17 leading carmakers—including BYD, China FAW Group, and SAIC Motor—pledged to pay suppliers within 60 days to comply with regulatory guidelines for high-quality sector growth. In practice, automakers prioritized new orders for timely payment, addressing older debts more gradually, so the full benefits of these commitments will materialize over time [para. 6][para. 7][para. 8].

[para. 9][para. 10][para. 11] However, while these measures slowed the pace of the price war, they did not end it. Instead, automakers shifted strategies, favoring aggressive pricing for new models—particularly prevalent in the new-energy vehicle (NEV) segment, where low technological barriers increase direct price competition. Regulators responded, with CAAM warning in November 2025 against excessively low pricing for new NEV models and the State Administration for Market Regulation stressing that “selling at a loss” would invite legal risk [para. 9][para. 10][para. 11].

[para. 12] The relentless low-pricing trend echoes a supply-demand imbalance, as evidenced by the China Automobile Dealers Association’s inventory early warning index rising to 55.6% in November, up 3.8 points from the previous year and above the critical 50% threshold [para. 12].

[para. 13][para. 14] To further encourage car consumption, the government offered trade-in subsidies in 2025, driving sales of 11.2 million vehicles in the first 11 months. These trade-in support policies will be continued into 2026, but the scale of subsidies is set to shrink as broader NEV tax incentives wind down [para. 13][para. 14].

[para. 15][para. 16] UBS analysts forecast that China’s passenger car sales will dip 2% in 2026, compared to an 8% growth in 2025, and anticipate NEV wholesale growth to slow to 15% from 28%. These predictions rely on the assumption that subsidies for scrapping and replacing vehicles (for both NEVs and traditional cars) will decrease by 5,000 yuan compared to 2025 [para. 15][para. 16].