China EV brands Zeekr, Neta inflated car sales using insurance scheme

Chinese EV brands Neta and Zeekr have been inflating sales figures by prematurely insuring vehicles, allowing them to book sales before actual customer purchase to meet aggressive targets. Neta reportedly inflated over 60,000 sales from January 2023-March 2024, representing over half its reported volume, while Zeekr utilized similar tactics, leading to a significant surge in reported sales in areas like Xiamen. This 'zero-mileage used car' practice, driven by fierce market competition and chronic overcapacity, is now facing a regulatory crackdown from Chinese authorities and state media, with the industry ministry planning to ban resales within six months of registration, which could significantly impact EV manufacturers' reported performance and market transparency.

Analysis

Recent findings indicate that Chinese electric vehicle manufacturers Neta and Zeekr (ZK) have systematically inflated their sales figures to meet aggressive performance targets. The practice involves registering vehicles with insurance before a final sale to a consumer, thereby booking the revenue prematurely. For Neta, this method accounted for at least 64,719 vehicles, over half of its reported sales between January 2023 and March 2024. Similarly, Zeekr, a premium brand under Geely, exhibited anomalous sales spikes, such as a 14-fold month-over-month increase in the city of Xiamen in December, where insurance records showed 2,737 sales but vehicle administration data reflected only 271 new license plate registrations. This discrepancy highlights a significant gap between reported sales and genuine end-user demand. The issue, stemming from a hyper-competitive market plagued by overcapacity and a persistent price war, is now facing a severe regulatory backlash. Chinese state media has publicly condemned the practice, and the industry ministry is reportedly planning to ban the resale of vehicles within six months of registration, a move that would directly target this sales inflation channel. While Zeekr has formally rejected the allegations, its simultaneous creation of a special team to investigate the matter suggests significant internal and external pressure, raising material questions about corporate governance and the reliability of its reported metrics.

Key Decisions for Investors

• Investors should treat Zeekr's (ZK) historical sales data and forward-looking growth guidance with extreme skepticism, as the reported figures may be materially inflated and not reflective of true end-user demand.
• The impending regulatory clampdown, specifically the proposed ban on reselling vehicles within six months of registration, represents a major near-term risk that could lead to a sharp downward revision of reported sales for Zeekr and other companies employing this practice.
• This situation warrants a broader due diligence focus across the Chinese EV sector, compelling investors to scrutinize discrepancies between wholesale or insurance-based data and actual retail license plate registrations to identify other potential instances of sales inflation.
• Zeekr's conflicting public statements, which combine a firm denial with an internal investigation, signal a significant corporate governance red flag that calls into question management's transparency and credibility.