The company's Taocheche platform is riding China's late-blooming used-car boom, but its inventory-heavy model shows the high cost of building trust in the sector

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Key Takeaways

  • Taocheche has become China's largest used-car platform by GMV, but the business comes with razor thin margins and steep losses for operator Yusheng
  • The broader used car market is finally picking up, helped by policy changes and more price-conscious buyers, even as companies keep searching for a profitable business model

China's used-car market has always looked like it should be fertile ground for success. Vehicle ownership reached 366 million units in 2025, the largest globally. But just 5.5% of that base came from used-vehicle transactions, far below the 12.8% level in the U.S., according to third-party market data in an IPO filing last week by Yusheng Holdings Ltd., operator of Taocheche, which it bills as China's largest used car platform.

And yet, second-hand cars have remained a tough sell in China, where many buyers still prefer new vehicles. Used car transactions have been weighed down by buyer concerns related to hazy vehicle histories, uneven inspections, inconsistent pricing and a fragmented dealer base. Those are exactly the frictions Yusheng says Taocheche can solve.

Many of the company's business metrics show how used car trading can translate to big business. Yusheng reported revenue of 6.66 billion yuan ($924 million) last year, up 21.8% from 2024. Its gross profit for the year totaled 679 million yuan, equating to a gross margin of 10.2%. Its platform handled 191,487 vehicle transactions last year, supported by 62 offline sales centers nationwide.

But none of that matters if a company is losing money, which is definitely the case for Yusheng. The company reported a net loss of 916.9 million yuan in 2025, widening from a 695.5 million yuan loss in 2023 and 574 million yuan in 2024. That shows that while Taocheche has scale, it has yet to find a sustainable business model that yields profits as well.

Late-arriving used-car moment

On paper, at least, the market is finally moving in Yusheng's direction. China's used-car transactions crossed 20 million units for the first time in 2025, reaching 20.1 million vehicles with a transaction value of about 1.3 trillion yuan, or nearly $200 billion, according to the China Automobile Dealers Association.

Policy changes are part of the story. For years, the market was constrained by local restrictions that made it difficult to move cars across provinces for resale. Those rules were often framed as environmental safeguards, but in practice they protected local dealers and prevented supply from getting to where it was needed. Recent reforms have improved transaction efficiency, transparency and traceability, according to Yusheng's prospectus. Cross-regional trades accounted for almost 35% of transactions last December, up from just over 30% a year earlier.

Consumption habits are shifting too. Younger buyers are more open to pre-owned goods and more focused on value in a slower economy. Even so, China still trails developed markets. Yusheng points to familiar frictions: lack of information about a car's history, inconsistent inspection standards, limited pricing transparency and a transaction process still too dependent on small operators that lack the resources to provide professional standards.

In Western markets like the U.S., big names like CarMax (NYSE:KMX), Carvana (NYSE:CVNA) and AutoNation (NYSE:AN) have stepped in to fill that gap.

The cost of building trust

Yusheng's model is far more hands-on than simply operating an online marketplace where buyers and sellers interact directly with the platform only as facilitator. It is also directly involved in the trading process, buying and selling used cars itself, providing platform services to buyers and sellers, and maintaining its own offline sales-center network where people can come to inspect cars before a purchase.

Its more active role is designed for a market where buyers still want to see and touch the vehicle before paying — and where trust is the biggest obstacle. But such measures are also very costly. Inventory ties up cash. Offline centers add fixed costs. Reconditioning requires labor and facilities. And prices may fall before a car is sold – an especially big risk in the current Chinese car market plagued by constant price wars.

That risk is not theoretical. Yusheng's prospectus says revenue per retail unit fell in 2024 as intensified competition in China's new-vehicle market suppressed used-vehicle prices. More than 80% of the company's cost of revenues in 2025 came from vehicle procurement. The result is a gross margin of around 10% that leaves little room for mistakes.

Searching for a business model

The plight of other players in China illustrates how unsettled the playbook remains. Uxin (NASDAQ:UXIN), one of the earliest listed used-car platforms, has leaned into large offline superstores with reconditioning factories and local government partnerships. In 2025, its retail transaction volume more than doubled to 51,110 units and revenue rose 78.6% to 3.24 billion yuan ($463.3 million). But it still recorded a 262.5 million yuan net loss from operations, with gross margin of just 6.7% – even lower than Yusheng's.

Another player, Guazi, offers a cautionary tale. Its parent, Chehaoduo, raised $1.5 billion from SoftBank Vision Fund in 2019, when investors were still betting heavily that online platforms could restructure China's used car market. Since then, Guazi has repeatedly adjusted its model — from its early "no middleman" pitch, to guaranteed sales, offline stores, nationwide buying and, most recently, as a third-party platform serving dealers.

ByteDance-backed Dongchedi, which is reportedly also considering a Hong Kong IPO, is another wildcard. It is best known as an auto information and advertising platform, but its huge traffic base gives it a natural path into transactions. Taken together, these cases show the sector is still an experiment in progress as companies search for the right business formula.

The investment question

Yusheng is trying to win over investors by pointing to real momentum. It was China's leading used-car transaction platform in 2025 based on its 15.5 billion yuan in GMV and 3.8% market share, according to third-party market data in its prospectus. The same ranking shows the top five platforms had only 14.5% of the market combined, a reminder that the market is still quite fragmented.

At the same time, the used car traders are having to compete with new car dealers offering aggressive discounts to clear their own inventory. A recent report from the Autohome Research Institute said used passenger car transaction growth slowed to just 1.8% in the first three quarters of 2025, compared with 9.2% growth for new-car retail sales. The study also found that more than 80% of people who reject used cars cite opaque vehicle conditions and irregular transactions as major concerns.

That shows the trust problem continues to be a major challenge keeping many buyers from considering used cars. Yusheng is trying to win that trust by buying its own inventory, conducting inspections, reconditioning cars and operating offline stores. The success or failure of its IPO will come down to whether investors believe that costly and time-consuming trust-building process can eventually translate into profits, not just volume.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.