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

Chinese EV brands Neta and Zeekr have been inflating sales figures by arranging insurance for tens of thousands of vehicles and booking them as 'zero-mileage used cars' before actual customer sales, a practice driven by aggressive targets and intense market competition amid chronic overcapacity. Neta, whose owner recently entered bankruptcy proceedings, booked over 64,000 such early sales from January 2023 to March 2024, representing over half its reported volume, while Zeekr also utilized this method, leading to abnormal sales surges. This widespread practice, which distorts financial reporting and misleads buyers, is now drawing significant regulatory scrutiny from Chinese authorities, including potential bans on reselling newly registered vehicles within six months, underscoring a critical challenge for investors assessing the true performance and health of China's EV sector.

Analysis

Chinese electric vehicle manufacturers Neta and Zeekr have systematically inflated their sales figures to meet aggressive targets amidst intense market competition. The practice involves pre-insuring vehicles and registering them as sold before a final buyer is found, creating what the industry calls "zero-mileage used cars." For Neta, this method accounted for at least 64,719 units between January 2023 and March 2024, representing more than half of its total reported sales. This operational distress is underscored by the recent bankruptcy proceedings of its parent company, Zhejiang Hozon New Energy Automobile. Similarly, Zeekr, Geely's premium brand, employed this tactic, leading to anomalous sales spikes, such as its sales in Xiamen surging more than 14-fold in a single month to 2,737 units while official registrations showed only 271 cars. This situation is now drawing significant regulatory scrutiny, with state media openly condemning the practice and the industry ministry considering a ban on reselling such vehicles within six months of registration. This looming crackdown suggests a material risk to companies relying on these methods and casts doubt on the reliability of reported sales data, a primary metric for valuing companies across China's oversupplied EV sector.

Key Decisions for Investors

• Investors should apply heightened scrutiny to reported sales figures from Chinese EV makers, cross-referencing wholesale numbers with retail vehicle registration and insurance data to detect potential inflation.
• The direct allegations against Zeekr (ZK) and its parent Geely (0175) present significant governance and reputational risks, warranting a reassessment of exposure to these specific entities.
• Monitor impending Chinese regulatory actions, as a potential clampdown on "zero-mileage" car sales could disrupt current business practices, impact near-term reported growth, and reveal the true state of industry-wide inventory levels.
• The bankruptcy of Neta's parent following these practices signals that such sales inflation may be a leading indicator of severe financial distress, a factor to consider when evaluating other high-growth, cash-burning EV startups.