As the sun sets on the Biden administration, it is preparing one last maneuver that could prevent Chinese cars from driving on American roads for years to come.
The Department of Commerce is currently finalizing a rule to make it illegal to import or sell cars, trucks, and buses in the United States that incorporate Chinese software or hardware for internet connectivity or autonomous driving. The new measure against Chinese vehicles, which is set to take effect by the end of the decade, will come on top of the 100 percent tariffs on Chinese EVs that the administration finalized in September.
Some of China’s car companies remain undeterred, however. The likes of Nio, GAC, and Xpeng are for now keeping their presence in the U.S. with research and development centers in Silicon Valley.
“We still have aspirations to enter the U.S. market,” Ganesh Iyer, chief executive of the R&D-focused Nio U.S., told The Wire in a recent interview. “We can easily solve this.”
As a Chinese car manufacturer currently pursuing autonomous vehicles, Nio should sit firmly within the crosshairs of the expected new rules, which are designed to stop car companies from sourcing components from China and Russia that link vehicles to broader communications networks. But the restrictions also prohibit the U.S. importing or selling of connected cars made by companies “controlled by” China, even if the connectivity components were made elsewhere.
A tutorial from Volkswagen outlining the ‘remote start’ functionality. Credit: Volkswagen USA
The fear driving the new rules is that sensitive consumer data will end up in Chinese hands, and that in a worst-case scenario, the maker of vehicle software could seize remote control of cars. Similar capabilities already exist: Last February, Ford filed a patent application for technology to remotely lock out a vehicle owner. Many manufacturers, including Volkswagen, have created apps to allow drivers to turn on their cars with a smartphone app.
Meanwhile, cars increasingly collect enormous sums of user data, using cameras, microphones, radars, sensors, and other information-collecting hardware. They use software to power systems like bluetooth and GPS, harvesting information which they can transmit by radio wave back to manufacturers’ servers.
“It doesn’t take much imagination to understand how a foreign adversary with access to this information could pose a serious risk to both our national security and the privacy of U.S. citizens,” U.S. Secretary of Commerce Gina Raimondo said in a September statement.
If there’s any path for a Chinese company trying to manufacture cars in the United States, it’s narrow. The purpose of this rule is to remove Chinese companies from the supply chain.
Ajay Kuntamukkala, a managing partner at Hogan Lovells who advises on China-related national security issues
Industry analysts expect cars could soon collect even more information. “Everything that’s above the wheel is going to be HMI, human-machine interface,” says Bill Russo, CEO of Shanghai-based advisory firm Automobility. “Everything below the wheel is going to be what’s driving the brain.”
However, Nio’s Iyer says its EVs run on chips produced by Nvidia and Qualcomm, two U.S. firms, and that the company will store data in the United States.
Nio is used to complying with different highway safety standards in different markets, so it is prepared to adapt to U.S. regulations, Iyer adds. And he disputes the idea that Nio is even a Chinese company — he calls it “global,” echoing rhetoric increasingly deployed by Chinese firms facing murky futures in the United States.
Nio is not the only firm that thinks it can comply with the rules. Chinese autonomous vehicle company Pony.AI said after listing on Nasdaq last month that it could replace vehicle-connectivity hardware sourced from China. This hardware is “easily replaceable from sources outside China or Russia,” the company said in its IPO prospectus.
Analysts are skeptical that those moves will translate to market access. Even if Chinese companies agree to build cars in the United States, officials will likely scrutinize such manufacturing, says Emily Kilcrease, Senior Fellow and Director of the Energy, Economics and Security Program at the Center for a New American Security, a Washington-based think tank.
She notes the political firestorm around Gotion High-Tech, a Chinese battery maker that drew attention from Republican policymakers as it sought to build a factory in rural Michigan.
Firms covered by the proposed rule could seek an exemption from the Department of Commerce, but the agency is unlikely to grant one given the stated purpose of the restrictions, says Ajay Kuntamukkala, a managing partner at Hogan Lovells who advises on China-related national security issues.
“If there’s any path for a Chinese company trying to manufacture cars in the United States, it’s narrow,” he says. “The purpose of this rule is to remove Chinese companies from the supply chain.”
Noah Berman is a staff writer for The Wire based in New York. He previously wrote about economics and technology at the Council on Foreign Relations. His work has appeared in the Boston Globe and PBS News. He graduated from Georgetown University.
