Navigating China's Auto Regulatory Reset: Why BYD is Poised to Lead in the "Zero-Mileage" Era

The Chinese automotive industry is undergoing a seismic shift as regulators crack down on the "zero-mileage" used car scandal—a practice where new vehicles are artificially inflated into sales figures by being registered as "used" and resold with zero miles on the odometer. This systemic fraud has distorted market data, eroded consumer trust, and left automakers scrambling to adapt to stricter export policies and compliance requirements. For investors, this regulatory reset presents a bifurcated landscape: firms with robust R&D, export readiness, and quality-focused strategies will thrive, while laggards reliant on subsidy-driven gimmicks face obsolescence. BYD, China's electric vehicle (EV) powerhouse, emerges as the prime beneficiary of this shift, while smaller players like Zhejiang Leapmotor lag behind.

The Regulatory Hammer Strikes: Winners and Losers

The reforms, spearheaded by China's Ministry of Commerce and State Administration for Market Regulation, target three core issues: fraudulent sales reporting, export policy distortions, and consumer transparency gaps. Automakers must now navigate a tighter compliance regime, with penalties ranging from fines to export bans for non-compliance. This creates a clear divide between companies with scalable compliance infrastructure and those relying on short-term tricks.

BYD: The Gold Standard in Regulatory Readiness

BYD's dominance is no accident. The company's technological edge—from its proprietary刀片 (Dolphin) batteries to advanced ADAS systems—allows it to meet both domestic safety standards and international export requirements. Its vertically integrated supply chain and global partnerships (e.g., with Russia's Avtotor and Southeast Asia's distributors) ensure compliance with regional regulations, such as Russia's ERA-GLONASS system mandates and Nigeria's age-based import bans.

BYD's stock has surged 120% over two years amid its shift to quality-driven exports, while Leapmotor's shares have plummeted 30% as regulators penalized its reliance on "zero-mileage" gimmicks.

NIO and Li Auto: Premium Players, Premium Risks

Premium EV brands like NIO and Li Auto also benefit from the reforms. Their focus on software-defined vehicles and subscription-based services aligns with regulators' push for innovation over volume. However, their higher price points may limit near-term growth in export markets prioritizing affordability. Investors should monitor their margins as they scale compliance costs.

The Laggards: Leapmotor, Geely's Marginal Units

Smaller automakers like Zhejiang Leapmotor—which saw a 3.1% stock decline in Q2 2025—are at risk. Their business models, built on aggressive discounting and subsidy arbitrage, clash with the reforms. Regulators are targeting their "zero-mileage" exports to Southeast Asia and Russia, where local authorities now demand proof of genuine pre-ownership. Geely's marginal brands, such as Lotus and Lynk & Co., face similar scrutiny unless they pivot to transparent sales practices.

Export Markets: Where Compliance Meets Opportunity

The reforms are reshaping export dynamics. China's second-hand EVs—particularly those under $10,000—could dominate markets like Africa, Southeast Asia, and the Middle East, provided they meet safety and emissions standards. BYD's Dolphin and Atto 3 models, already compliant with EU and ASEAN norms, are prime candidates. In contrast, low-cost "zero-mileage" exports lacking proper certifications face bans.

BYD's exports to Russia grew 180% in 2024 as it secured ERA-GLONASS certifications, while Southeast Asia shipments rose 250% due to its affordability and compliance with local age limits.

Risks and Investment Takeaways

The regulatory reset carries risks for investors. Global trade tensions—such as EU tariffs on Chinese EVs—could offset compliance gains. Additionally, overcapacity in the domestic market (3.5 million unsold cars in April (2025)) remains a wildcard. Automakers failing to adapt will face margin compression and reputational damage.

Investment Strategy:- Overweight BYD: Its technological leadership, global compliance, and scale make it the safest bet. Target its stock at 2026 NEV sales targets.- Underweight Leapmotor: Its reliance on subsidy-driven "zero-mileage" sales makes it vulnerable to fines and export bans.- Monitor NIO/Li Auto: Their premium models need sustained software revenue to offset compliance costs.

Conclusion: The Shift to Quality-Driven Growth

China's auto industry is at an inflection point. The "zero-mileage" scandal has forced a reckoning, with regulators rewarding firms that prioritize transparency, safety, and innovation. BYD's ascent underscores a broader truth: in an era of regulatory discipline, technology and compliance are the new currencies of growth. Investors who align with this shift will capture the upside of China's automotive renaissance.

BYD's R&D investment ($12 billion in 2024) dwarfs competitors like Leapmotor ($1.5 billion), cementing its edge in the regulatory reset.