Zero-Mileage Exports: How China's Auto Strategy Risks Global Trade Wars and Opportunities in EV Supply Chains

The Chinese auto industry's "zero-mileage" used car export boom—vehicles registered as "used" but never driven—has become a double-edged sword. While it helps automakers offload excess inventory and inflate sales figures, the practice is now sparking global trade tensions, distorting market data, and creating risks for automakers caught in regulatory crosshairs. For investors, the fallout could reshape EV supply chain dynamics, favoring firms with resilient business models and exposure to regions navigating these artificial pricing trends.

The Distortion of Sales Data and Global Trade Risks

Zero-mileage exports have surged, with Chinese used car shipments hitting 400,000 units in 2024, a 45.7% year-on-year increase, according to industry data. Over 58% of these exports are new energy vehicles (NEVs), underscoring their strategic role in China's EV leadership ambitions. However, the practice masks a deeper issue: automakers like BYD and Great Wall Motors are artificially inflating sales figures by selling registered but unused cars as "used" on discounted platforms. This not only distorts domestic market metrics but also fuels accusations of "dumping" in export markets.

When China's commerce ministry began investigating these practices in late 2024, BYD's shares fell 3.1%, signaling investor anxiety over compliance risks. The broader Hang Seng Automobile Index dropped 2%, reflecting sector-wide unease.

The risks extend globally. Export markets like Russia (which mandates costly ERA-GLONASS systems and Euro V emissions compliance) and Nigeria (banning right-hand-drive vehicles) are now scrutinizing Chinese imports. Countries like Kazakhstan have imposed 42% tax burdens on individual imports, forcing automakers to pivot toward compliant "genuine used" vehicles or face retaliatory tariffs. The U.S. and EU, already wary of Chinese EV subsidies, could escalate trade disputes if they view zero-mileage exports as another form of unfair competition.

Regulatory Crackdowns and Compliance Challenges

China's commerce ministry has begun tightening oversight. A May 2025 meeting with automakers, industry associations, and trading platforms emphasized stricter registration tracking and resale controls. The goal: prevent automakers from inflating sales via "zero-mileage" gimmicks.

The implications are twofold:
1. Domestically, automakers reliant on inflated sales data (e.g., Dongfeng Motor) face margin pressure as discounts erode profitability.
2. Globally, exporters must now navigate regional regulations. For example, Russia's recycling fee hikes and Nigeria's import bans could force automakers to write off non-compliant stock, further straining balance sheets.

Investment Opportunities in Resilient Automakers

The regulatory shift favors automakers with strong R&D and regional compliance expertise:

1. BYD: Despite its 2024 stock dip, BYD's dominance in battery tech and its global R&D network (e.g., U.S.-focused Atieva) position it to weather scrutiny. Its 2025 Q1 EV deliveries rose 85% compared to peers, signaling underlying strength.
   

2. Export Logistics Firms: Companies like COSCO Shipping and regional distributors in Central Asia and the Middle East could profit by handling compliant, "genuine used" vehicles. These regions remain key markets for Chinese NEVs, with Iran and Turkey seeing rising demand for affordable EVs.

3. Quality-Focused Automakers: Firms like Xpeng and NIO, which prioritize software and innovation over price-cutting, are less exposed to regulatory risks. Their PHEV and battery-as-a-service models align with global sustainability trends.

Risks and Mitigation Strategies

• Trade Tariffs: Monitor U.S. and EU trade policies. If tariffs are imposed, automakers without diversified export routes (e.g., JAC Motors) could suffer.
• Regional Compliance Costs: Automakers exporting to Russia or India must factor in certification expenses. Those with local partnerships (e.g., BYD's tie-up with Kazakhstan's KazakhAuto) gain an edge.
• Consumer Trust: Buyers in export markets may reject "zero-mileage" cars due to warranty voidance risks. Brands like SAIC-GM with transparent ownership documentation could capitalize.

Conclusion: Navigating the New Auto Trade Landscape

Zero-mileage exports have become a litmus test for China's auto industry. While they offer short-term liquidity, the long-term risks—trade wars, regulatory fines, and eroded consumer trust—are mounting. Investors should favor automakers with innovative tech, regional compliance, and diversified export channels. The winners will be those that shift from "quantity over quality" to sustainable growth, turning regulatory headwinds into opportunities to solidify global EV leadership.

Investment Takeaway: Overweight BYD and Xpeng for their R&D prowess; consider logistics firms with Middle Eastern/Central Asian exposure. Avoid automakers dependent on inflated sales metrics and non-compliant export routes. The era of "zero-mileage" gimmicks is ending—invest in firms building for the future.