China has banned carmakers from selling new vehicles at prices lower than their production costs. The rule, issued by the State Administration for Market Regulation (SAMR), blocks any discounts or subsidies that cut net selling prices below cost. This step aims to end a fierce price war that slashed car prices by 7% last year and hurt profitability. The new pricing guidance, effective immediately, also forbids selling higher-end models at the same price as cheaper versions. Carmakers cannot offer bulk discounts to hide price cuts or ship extra units without invoices. Standard clearance sales for excess stock are allowed. Zhao Zhen, sales director at Shanghai’s Wan Zhuo Auto, said, “The new guidelines will dampen consumers’ buying interest in cars this year with falling deliveries due to the phase-out of the sales-tax break.” She added, “The government is urging carmakers not to blindly pursue sales volume at the expense of profitability.” Electric vehicle buyers now face a 5% purchase tax, up from zero last year, as Beijing phases out earlier incentives. The tax will rise back to the normal 10% in 2028. Zhao noted buyers hoping for big discounts in 2026 might cancel plans or choose cheaper cars amid tighter price rules. Prices have dropped sharply: last year, the average passenger car sold for 170,000 yuan ($24,615), down 7% from 2023. EV prices fell by 12.5% over two years, with an average of 161,000 yuan, while petrol cars averaged 182,000 yuan. Following these regulations, shares of mainland-based EV makers listed in Hong Kong, led by Li Auto, fell by around 2% on Friday morning.