China has stepped in to rein in an intense price war in its auto industry after passenger car sales fell 19.5% in January from a year earlier. This was the sharpest drop since February 2024. Sales stood at 1.4 million units, down from 2.2 million in December. Weak demand and reduced EV tax benefits weighed on buyers.

The State Administration for Market Regulation issued new guidelines banning carmakers from pricing vehicles below production cost to push out competitors. The rules also warn against deceptive pricing and price-fixing between automakers and parts suppliers. Furthermore, the rules caution that violations could carry serious legal risks.

The prolonged price battle has already cost the industry an estimated 471 billion yuan over the past three years. Analysts expect domestic demand to remain soft. S&P projects up to a 3% fall in light vehicle sales in 2026.

Even so, Chinese automakers are gaining momentum overseas. Passenger car exports surged 49% year-over-year to 589,000 units in January. Companies like BYD are aggressively expanding in Europe and Latin America. Analysts expect exports to grow further this year, supported by electric and plug-in hybrid models.

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