Chinese automakers are gaming their sales numbers by registering unsold electric vehicles to dealerships, who then dump them as discounted “used” cars that have never been driven. The practice has become so widespread that China’s Communist Party is now trying to stop it, revealing the deep structural rot in the world’s largest EV market built on $230 billion in government subsidies.

This isn’t just creative accounting. It’s a symptom of catastrophic overcapacity, unsustainable government intervention, and an industry teetering on the edge of collapse—with implications that will reshape global automotive markets.

How China’s Fake EV Sales Scam Works

The scheme is straightforward but devastating. Chinese automakers, desperate to meet sales targets in a brutally competitive market, sell cars to dealerships and register them as “sold”—even though no actual customer has purchased them. Dealers, stuck with officially sold inventory, then offload these zero-mile vehicles as “used” at steep discounts.

The People’s Daily, the Communist Party’s main newspaper, complained earlier in 2025 that this sales-inflating tactic “disrupts normal market order” and criticized companies for their “data worship.” When the party’s own propaganda outlet starts sounding alarms, you know the problem is severe.

Wei Jianjun, chairman of Chinese automaker Great Wall Motor, warned in May 2025 that China’s car industry could tumble into a financial crisis. He said it “just hasn’t erupted yet.”

Market analysts have adopted the term “involution” to describe China’s EV industry—a euphemism for an economic death spiral where companies invest heavily for shrinking returns.

The $230 Billion Government Subsidy Machine Behind the Facade

China’s EV dominance didn’t happen through market competition. It was engineered through massive state intervention that dwarfs anything seen in Western economies.

The Center for Strategic and International Studies estimates the Chinese government provided more than $230 billion in financial assistance to the EV sector from 2009 to 2023. For context, the recent Republican-sponsored tax bill eliminated nearly all federal subsidies for EVs in the United States.

The subsidy tsunami created explosive growth but terrible fundamentals. Michael Dunne, CEO of California-based consulting firm Dunne Insights, counts 46 domestic and international automakers producing EVs in China—far too many for even the world’s second-largest economy to sustain.

China’s leaders don’t trust markets to sort out the mess. Local governments prop up failing companies because they bring jobs and tax revenue. The city of Wenzhou recently helped arrange financing for EV maker WM Motor to restart its factory. The city of Hefei rescued Nio in 2020, but the publicly listed company continues hemorrhaging cash—losing approximately $930 million in the first quarter of 2025 alone.

The Math Doesn’t Work: Subsidies Reach Unsustainable Levels

Research firm Rhodium Group calculates that Chinese policymakers spend the equivalent of 3% of the central government’s fiscal revenues subsidizing car sales. Gregor Sebastian, a senior analyst at Rhodium, says this level is “probably unsustainable,” particularly if the Chinese government also hopes to develop semiconductors and AI.

He recommends Chinese policymakers “slowly take the foot off the gas pedal, but in a way that the sector doesn’t collapse.”

Even with continued state support, consolidation is inevitable. Industry analysis suggests only 15 of the current 129 EV and plug-in hybrid brands will remain financially viable by 2030, according to consulting firm AlixPartners.

Price Wars Destroy Profitability Across the Industry

China’s overcapacity fueled aggressive price wars that have made profitability nearly impossible. Discounts reached a record 16.8% in April 2025, and only three manufacturers—BYD, Seres, and Li Auto—are currently operating in the black.

To attract customers in the crowded market, China’s EV companies have been slashing prices. BYD repeatedly reduced the price of its low-end Seagull model, most recently offering it for 55,800 yuan (approximately $7,700 USD), nearly 20% below the official retail price.

Yet China’s auto industry remains nascent enough to attract new entrants. Xiaomi, which makes everything from smartphones to rice cookers, launched its first EV model in 2024. Companies pile into the sector because state support extends struggling businesses far beyond what market forces would allow.

Global Export Strategy Hits Tariff Wall

China’s state-led EV program was designed to be predatory. By subsidizing these companies, China sought to edge out established automakers in the United States, Europe, and elsewhere. Beijing’s economic planners are willing to sacrifice profitability to fulfill their dreams of building an internationally competitive car industry.

China “sustains a lot of inefficiency at home in order to dominate industries and markets globally,” Dunne explained.

But international markets are fighting back. President Joe Biden’s administration imposed a 100% tariff on Chinese EVs in 2024, which President Donald Trump has maintained, effectively shutting these vehicles out of the U.S. market. The European Union, Canada, Turkey, and Mexico have also hiked duties on Chinese cars.

Restricted access to key international markets makes it even harder for Chinese EV companies to survive without continued government aid. The international automobile industry is shaping up to be a test of wills between Chinese leaders determined to dominate it and global policymakers who hope to stop them.

EVXL’s Take

We’ve been documenting this slow-motion train wreck for months, and now The Atlantic has handed us the smoking gun. The fake sales practice isn’t some minor accounting irregularity—it’s proof that China’s entire EV “miracle” is a house of cards built on unsustainable government intervention.

Look at what we’ve been reporting: In August, we covered how Chinese officials begged companies like BYD to stop the price wars before they tanked the whole industry, with President Xi Jinping himself criticizing provincial governments for blindly overinvesting. In July, we reported AlixPartners’ prediction that only 15 brands would survive to 2030—that’s 114 brands dead in five years. In May, we documented record 16.8% discounts with only three profitable manufacturers.

The pattern is clear: China created massive overcapacity through state subsidies, triggering brutal price wars that destroyed profitability. Now companies are literally inventing sales to meet targets while burning through government cash. This isn’t competition—it’s controlled demolition of capital on a scale that would make Soviet central planners blush.

And it’s not just a China problem. We just reported how Tesla’s China sales cratered to a three-year low while Xiaomi dominates despite safety scandals. Thailand is struggling as China’s overcapacity spills over into Southeast Asian markets. Even Europe is feeling the pressure as BYD’s aggressive expansion forces traditional automakers to retreat from pure EVs into hybrids.

China’s distorted EV market threatens to export its problems globally. By pushing down car prices through massive subsidies and artificially low pricing, Chinese manufacturers are forcing governments worldwide to use tariffs to meddle with markets. The endgame? China’s EV industry may overrun its competitors financially while still being a catastrophe for everyone involved—including Chinese taxpayers funding this money pit.

The fake sales scandal reveals what happens when governments try to manufacture industrial champions through sheer force of subsidies: you get impressive production numbers masking terrible economics, zombie companies kept alive by local officials protecting jobs, and an inevitable reckoning that keeps getting postponed until it can’t be anymore.

What do you think? Can China’s EV industry survive without government life support, or is this entire sector headed for collapse? Share your thoughts in the comments below.