China's Zero-Mileage Car Export Dilemma: Regulatory Risks and Investment Implications

The rise of "zero-mileage" used cars in China—a practice where newly registered vehicles are sold as "used" to inflate sales figures—has become a focal point for regulators and investors alike. This controversial tactic, driven by cutthroat competition in China's electric vehicle (EV) market, is now under scrutiny as authorities seek to curb deceptive practices and promote sustainable industry growth. For automakers, the regulatory crackdown poses both risks and opportunities, reshaping valuations and export strategies in ways that investors must navigate carefully.

The Regulatory Tightrope: Why "Zero Mileage" Matters

Zero-mileage cars, though never driven, are classified as "used" due to registration, allowing automakers to offload unsold inventory at discounted prices. This practice, popularized during China's EV price wars, has drawn sharp criticism from regulators. In May 2025, China's commerce ministry convened automakers like BYD and Dongfeng Motor to address concerns over market transparency and consumer trust. The ministry is now exploring stricter registration oversight, lifecycle tracking, and immediate resale controls, with the People's Daily labeling the practice a harmful "race to the bottom."

The implications for automakers are clear: short-term sales boosts from zero-mileage exports could erode long-term profitability. For instance, BYD's shares fell 3.1% in late 2024 amid scrutiny of its sales tactics, reflecting investor anxiety over regulatory fallout. Meanwhile, the broader EV sector, with over 100 competing brands, faces pressure to pivot from aggressive discounting to quality-driven strategies.

Export Markets: Growth vs. Regulatory Headwinds

China's used car exports hit 400,000 units in 2024, a 45.7% annual surge, with New Energy Vehicles (NEVs) accounting for 58% of shipments. Exports to Russia, Mexico, and the UAE dominated, but regional regulations are complicating growth. For example:
- Russia: Requires ERA-GLONASS systems (costing $300–$400) and Euro V emissions compliance, with higher duties for older vehicles.
- Nigeria: Bans right-hand-drive vehicles and cars over 15 years old.
- Kazakhstan: Imposes a 42% tax burden on individual imports, favoring newer, certified vehicles.

While these markets offer growth, automakers must navigate costly certifications and age restrictions. The shift toward "genuine used" vehicles (with mileage records) in Africa and Central Asia suggests a long-term preference for transparency—a trend aligning with China's regulatory push.

Investment Implications: Navigating the New Landscape

1. Focus on Quality Over Quantity: Automakers prioritizing innovation and quality—like BYD, which leads in battery tech—may outperform peers reliant on "zero-mileage" tactics. While short-term profits could dip due to regulatory compliance costs, BYD's valuation could stabilize as markets reward sustainable practices.
2. Export-Savvy Players: Companies with robust export networks and compliance expertise, such as those with warehouses in Dubai or Ghana, are better positioned to capitalize on regional demand. NEV exports, particularly PHEVs, offer higher margins and align with global green policies.
3. Monitor Regional Regulations: Investors should track policy shifts in key markets. For instance, Russia's upcoming recycling fee hikes or Nigeria's import bans could create winners and losers among exporters.

Conclusion: A New Era of Market Discipline

The zero-mileage scandal underscores the fragility of China's EV market, where overcapacity and price wars have pushed companies to extreme tactics. Regulatory reforms aim to purge these distortions, forcing automakers to compete on quality and innovation rather than artificial sales metrics.

For investors, the path forward is clear: favor firms with strong brand equity, cutting-edge technology, and adaptable export strategies. While the near term may see volatility, the long-term winners will be those that embrace transparency and sustainability—traits that could position China's EV sector for global dominance in the years ahead.

Investment thesis: Overweight automakers with R&D strength (e.g., BYD) and export agility, while underweight those dependent on "zero-mileage" gimmicks. Monitor regulatory signals closely, as policy clarity will further redefine valuations.*