Reuters reported: For national security reasons, the U.S. Department of Commerce announced on September 23, 2024, new proposed rules to ban the use of Chinese software and hardware in “connected” and self-driving cars on U.S. roads. The ban will also be extended to other foreign countries, including Russia.
Bloomberg reported and announced that Lael Brainard, director of the White House National Economic Council, will speak in Detroit on Monday about the Biden administration's efforts to "strengthen the U.S. auto industry." The Biden administration has expressed serious concerns about Chinese companies collecting data on U.S. drivers and infrastructure, as well as potential foreign manipulation of connected vehicles and navigation systems. In recent months, the Commerce Department has been meeting with industry experts in hopes of addressing security issues related to smart "connected" cars.
It is reported that the proposed regulations will prohibit the import and sale of vehicles with critical communication or autonomous driving system software or hardware from China. When the original news broke out, the proposal had not been made public yet, and the source requested anonymity when the original publication was made. The move marks a major escalation of US restrictions on Chinese cars, software and components. On September 13, made it known that it would significantly increase import tariffs on Chinese products by raising tariffs on electric vehicles to 100%, and imposing tariffs on solar cells, steel, aluminum, electric vehicle batteries and key minerals, among others.
U.S. Commerce Secretary Gina Raimondo said in May that Chinese software or hardware in American smart cars that are connected to a larger network pose a high risky to the safety of the U.S. If the software suddenly fails in millions of cars on the road, it will have catastrophic consequences. The U.S. Commerce Department plans to open a 30-day public comment period before finalizing the regulations. Most new cars in the United States are "connected" models, with on-board network hardware that can connect to the Internet and share data with internal and external devices. The Commerce Department plans to propose that the software ban will take effect in the 2027 model year (that is, new cars on the market in 2026), while the hardware ban will take effect in the 2029 model year or January 1, 2030. The ban under discussion will affect vehicles with Bluetooth, satellite and wireless functions, as well as highly automated vehicles that do not require driver control.
Last November, U.S. lawmakers warned Chinese companies about collecting and processing sensitive data when testing self-driving cars in the United States, targeting 10 Chinese companies in its questioning, including Baidu, NIO, WeRide, Didi Chuxing, Xpeng Motors, Inceptio, Pony.ai, AutoX, Deeproute.ai and Qcraft.
An industry group representing major automakers including General Motors, Toyota, Volkswagen, and Hyundai Motor warned that hardware and software replacements take time. Automakers point out that their systems require extensive engineering, testing and validation before they go into production and are generally not easily swapped out for products from other suppliers.
Reuters first reported details of the plan in early August 2023, including a ban on testing self-driving cars made by Chinese companies on U.S. roads. The White House approved the final proposal on Thursday (September 19), according to the government website. The proposal is aimed at ensuring the security of the U.S. connected car supply chain. Sources said it would apply to all vehicles on U.S. roads, but agricultural and mining vehicles would not be affected.
In recent years, China has become a leader in electric vehicles and smart car components, partly due to extensive government subsidies and support. In the fourth quarter of last year, BYD's pure electric vehicle sales exceeded Tesla's. The Chinese government issued a public statement, saying it respects data privacy, the safety of foreign customers and the principle of fair competition. (Source: Reuters report)
MPLG International Law Firm has been committed to helping Chinese factories land in North America for many years. A senior lawyer from its new energy/smart manufacturing legal team commented on the cause of the "U.S. proposed ban on the use of Chinese software and hardware in connected cars" and the subsequent impact on China once it is released:
Cause 1: Rapidly developing Chinese intelligent technology: This proves that Chinese automakers are developing intelligent technology at a rapid pace. Whether it is intelligent cockpit or intelligent driving, they are already at the forefront of the world. At present, the competition among China's large automakers in intelligent driving has become fierce. Huawei, Baidu, Ideal, and Xiaopeng are in the first echelon and can provide relatively mature urban autonomous driving. Xiaomi, DJI, Great Wall, BYD, among others. are also catching up. Intelligent driving has become one of the key factors for many people to buy new cars.
Cause 2: Long-term U.S. concerns about national security: The U.S. government has long-term security concerns about Chinese technology, especially technology related to critical infrastructure. Connected cars are not only a means of transportation, but also a smart device for data collection and processing, which can collect a large amount of sensitive data about user behavior, geographic location, and vehicle information. By restricting Chinese hardware and software, the U.S. government attempts to reduce potential national security threats and prevent possible espionage or data leaks.
Cause 3: Protecting the local technology industry: The ban protects local technology companies in the United States by restricting the use of Chinese technology. With the development of the smart car and connected car industries, technology companies are becoming important players in this field. Banning the use of Chinese software and hardware can create a more favorable competitive environment for American companies and encourage the innovation and development of local technology. Banning the use of Chinese software and hardware means that the competition between the two sides in the high-tech field will intensify and may lead to the differentiation of global technology standards, affecting the global supply chain and technology ecology.
1. Chinese companies face huge challenges: If the policy is implemented, the scope of the crackdown on Chinese companies involved in the field of smart cars will be unprecedented. The US Department of Commerce hopes that the final regulations will apply to all wheeled vehicles on public roads, such as cars, trucks, and buses, but will not affect agricultural vehicles or mining vehicles on private roads. This may also force Chinese companies to speed up the development of independent technologies or increase their layout in other international markets.
2. Rising costs for U.S. companies, reshaping supply chains: For U.S. automakers that already rely on Chinese software and hardware, replacing or developing new supply chains will increase production costs; it may also accelerate the U.S.'s move away from a supply chain that is heavily dependent on China and open up new paths. In addition, restricting the use of Chinese technology may slow down the spread of certain technologies, especially those software and hardware systems that are already widely used.
3. Consumers become losers in the short term: From the perspective of consumers, the price of connected cars may rise in the short term, and the choices may decrease. If automakers need to find alternative suppliers and adjust the supply chain, it may cause delayed product releases and delays in technology updates. At the same time, for models that have already used Chinese software and hardware, future maintenance and updates may also face more challenges.
4. International trade tensions: Such a ban could also lead to further trade tensions between China and the United States. The Chinese government may take reciprocal measures to restrict the application of American technology in the Chinese market. As the world's two largest economies, such a technological blockade will affect the coordination and cooperation of the global automotive industry and technology supply chain.
Conclusion: The proposed US policy of banning Chinese software and hardware in connected cars is a strategic consideration of multiple factors such as national security, industrial protection, and technological competition. From the perspective of global supply chain, corporate costs and consumer choice, this ban may also bring about a series of complex chain reactions. The author believes that the results of the US presidential election in November are unlikely to substantially change the current Sino-US trade tensions and the transfer of manufacturing (including the automotive industry) to North America.
MPLG’s New Energy's legal team once again reminds Chinese companies to adjust their strategies as soon as possible to cope with the challenges brought about by this policy, while paying attention to changes in the global market and policy trends.
