Recently, the Biden administration is drafting new regulations to prohibit the sale and import of connected car software and hardware produced in China and Russia. The Chinese Foreign Ministry has responded, stating that these measures would ultimately harm the United States.
On Friday, the U.S. Department of Commerce released a forecast echoing the concerns of the Chinese Foreign Ministry. The forecast indicates that if the proposed restrictions on Chinese connected car software and hardware are enacted, U.S. auto sales could decrease by as much as 25,841 vehicles annually, and car prices might rise, thereby increasing the cost of living for American consumers.
The Biden administration’s new regulations aim to ban Chinese software and hardware in smart connected cars and autonomous vehicles on U.S. roads, citing “national security” concerns. A Chinese Foreign Ministry spokesperson criticized the discriminatory practices against enterprises from specific countries, stating that they violate the fundamental principles of the World Trade Organization and disrupt global trade and supply chain stability.
The U.S. Department of Commerce acknowledged that American automakers might face weaker competitiveness in the global market due to relatively higher car prices. The department estimates that annual U.S. auto sales could drop by 1,680 to 25,841 vehicles if the restrictions are implemented. Furthermore, the regulations could prohibit Chinese or Russian companies from selling car parts worth $1.5 billion to $2.3 billion in the U.S.
A senior government official revealed that the new rules would not apply to cars already on U.S. roads with Chinese software. The software ban would take effect for 2027 car models, and the hardware ban would be effective for 2030 car models. The public has 30 days to provide feedback before the rules are finalized.
This week, Morgan Stanley analyst Adam Jonas downgraded ratings for several U.S. automakers, including GM (GM), Ford (F, Financial), and Rivian. He noted that U.S. automakers lack competitiveness in both price and product mix, leading to a shrinking market share. Jonas also pointed out that the average transaction price of U.S. cars is nearing historical highs, placing significant financial pressure on consumers. Despite recent interest rate cuts by the Federal Reserve, the average monthly car payment in the U.S. has exceeded $700.
According to the U.S. Department of Commerce, the new regulations would effectively ban all Chinese vehicles since they all feature connected car software and hardware. However, data shows that the number of vehicles produced in China and exported to the U.S. is relatively low, suggesting that the short-term impact on Chinese car exports might be limited.
The China Association of Automobile Manufacturers reported that in 2023, China exported 74,800 passenger cars to the U.S., accounting for only 1.4% of total exports. New energy passenger cars comprised 18,600 of these exports, at just 0.4% of the total.
Importantly, the new regulations would also affect American automakers. GM (GM) and Ford (F, Financial) would have to stop importing cars from China to the U.S. Currently, GM’s Envision and Ford’s Lincoln Nautilus sold in the U.S. are manufactured in China. In the first half of 2024, GM sold about 22,000 Envisions in the U.S., and Ford sold 17,500 Nautilus models.
