China Issues First Unified Vehicle Cost Calculation Standard Amid Price War

On July 15, the China Association of Automobile Manufacturers (CAAM), together with 18 major domestic automakers, officially released the Rules for Cost Estimation of Complete Vehicles in China’s Automotive Industry.

The document is China’s first unified cost accounting standard designed specifically for vehicle manufacturers.

It aims to address disorderly price competition by establishing a common methodology for calculating vehicle production costs.

Competition in China’s auto market has intensified in recent years, with aggressive price cuts becoming a defining feature of the industry.

However, automakers have long used different accounting methods for expenses such as logistics, warranty obligations and promotional rebates, making cost data difficult to compare across companies and limiting the industry’s ability to assess vehicle profitability under a common framework.

The newly released standard establishes a unified model for calculating the cost and expenses of individual vehicle models while standardizing the treatment of several long-debated cost items.

For example, net revenue must be calculated after deducting promotional rebates, interest subsidies on auto financing, trade-in incentives and value-added tax adjustments.

Logistics costs and warranty expenses are also explicitly included in the cost accounting framework.

The standard further stipulates that companies must not artificially reduce reported costs through related-party transactions or accounting estimate adjustments.

Internal component transfer prices cannot be set below material costs, and manufacturers are required to retain contracts, invoices and approval records throughout the cost calculation process to ensure full traceability.

Recognizing differences in business models across manufacturers, the standard does not impose a completely rigid accounting framework.

For instance, companies may account for logistics and warranty expenses either as operating costs or as deductions from revenue based on their actual business practices.

Reasonable adjustments are also permitted for special situations such as new model production ramp-ups and seasonal fluctuations, providing operational flexibility while maintaining consistent accounting principles.

The release of the standard comes as profitability across China’s automotive industry continues to deteriorate.

According to the latest figures released by CAAM, the average profit margin for China’s vehicle manufacturing sector fell to just 1.5% in the first half of 2026.

This represents the lowest level in nearly a decade and well below the average profitability of China’s major industrial enterprises.

Persistent price competition, combined with promotional incentives and financing subsidies, has continued to squeeze automakers’ margins.

While the new Rules will not directly influence manufacturers’ pricing strategies, they establish a unified, comparable and traceable cost accounting framework for the industry.

The standard is expected to provide a common reference for corporate management, industry analysis and future efforts to foster more rational competition in China’s automotive market.