Employees work at an assembly line of Chinese vehicle manufacturer Seres Group in Liangjiang New Area, southwest China's Chongqing Municipality, April 25, 2024. (Xinhua/Huang Wei)

The Biden administration plans to finalize rules next week aimed at cracking down on Chinese vehicle software and hardware, US Commerce Secretary Gina Raimondo told Reuters. However, for Chinese car makers and companies in the supply chain, the impact will be minimal as the sales of Chinese cars in the US are low. But experts said that it will greatly impact international car makers in the US market, and the US automotive industry will likely bear a high cost for the attempt to replace the Chinese supply chain.

In September, the US Department of Commerce's Bureau of Industry and Security (BIS) announced a proposed rule that would prohibit the sale or import of connected vehicles integrating specific pieces of hardware and software, or those components sold separately, with a sufficient nexus to China or Russia, according to a document issued by the BIS.

The proposed rule focuses on hardware and software integrated into the Vehicle Connectivity System (VCS) and software integrated into the Automated Driving System (ADS). These are the critical systems that, through specific hardware and software, allow for external connectivity and autonomous driving capabilities in connected vehicles, according to BIS.  

BIS claimed that malicious access to these systems could allow adversaries to access and collect the US' most sensitive data and remotely manipulate cars on American roads. 

The proposed rule would apply to all wheeled on-road vehicles such as cars, trucks, and buses, but would exclude vehicles not used on public roads such as agricultural or mining vehicles, BIS said. 

The rule would also prohibit manufacturers with a nexus to China or Russia from selling connected vehicles that incorporate VCS hardware or software or ADS software in the US, even if the vehicle was made there.   

The prohibitions on software would take effect for Model Year 2027 and the prohibitions on hardware would take effect for Model Year 2030, or January 1, 2029 for units without a model year.

Cui Dongshu, secretary general of the China Passenger Car Association, told the Global Times the proposed rule mainly involves the software and hardware related to intelligent connected vehicles. This includes intelligent driving software, driver assistance software, and vehicle control software. Key hardware components may include various hardware components required for intelligent connectivity, such as sensors, chips, and other internal hardware. 

"We firmly believe that this ban is misguided and is intended to suppress foreign competition, hindering China's competitiveness to create an unfair advantage for American companies," Cui said.

However, crackdown measures won't stop the development of China's auto industry. For Chinese companies, the impact will be minimal as the sales of Chinese cars in the US are low. For Chinese companies that manufacture the components, should they face restrictions, they are well-positioned to explore alternative markets, including Europe, Southeast Asia, and Russia, Cui said.

According to the China Passenger Car Association, in 2023, the total number of passenger cars exported from China to the US was 74,800 units, accounting for only 1.4 percent of total exports. Among these figures, the number of new-energy passenger cars was 18,600 units, representing just 0.4 percent.

An industry insider from a leading Chinese auto manufacturer, who spoke on condition of anonymity to the Global Times on Friday, that "the company has a limited market share in the US."

In contrast, it will mainly affect international companies, particularly those that manufacture in China and sell back to the US, such as some models from General Motors (GM) and Ford, Cui said.

GM sells the Buick Envision and Ford sells the Lincoln Nautilus - both assembled in China - in the US market. In the first half of 2024, GM sold about 22,000 Envisions and Ford sold 17,500 Nautilus in the US, according to a Reuters report.

Both companies have not replied to Global Times' request for comment as of press time.

Backlash 

When the US released its proposed rules in September, it prompted widespread backlash from auto industries in the US and other countries.

The Alliance for Automotive Innovation, representing General Motors, Toyota Motor, Volkswagen, Hyundai Motor and other major automakers, in October sought at least one additional year to meet the hardware requirement, Reuters reported. 

John Bozzella, president and CEO of Alliance for Automotive Innovation, said in a statement in September that "this rule will require auto manufacturers in some cases to find alternate suppliers…you can't just flip a switch and change the world's most complex supply chain overnight. It takes time," according to the statement issued on its official website.

The Washington-based Alliance for Automotive Innovation has not responded to Global Times' inquiry as of press time.

The Consumer Technology Association (CTA) said both deadlines should be extended by two years, as did Honda Motor, according to Reuters. CTA is the trade association representing the $505 billion US consumer technology industry.

Honda Motor said in a statement in October that the timeline should be extended by two additional years in order "to conduct crucial testing, validations, and updating of necessary contracts."

Zhou Mi, a senior research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times that if the US were to impose the restrictions, it may backfire and put American automotive manufacturers in a difficult position regarding their supply chains, significantly limiting their options, and lead to high costs in seeking alternative suppliers, which could cause considerable harm to the US electric vehicle industry.

The US is attempting to block Chinese companies from entering its market, aiming to slow China's development and give American automakers a chance to catch up. However, in an industry that thrives on global cooperation, these restrictions could ultimately harm the competitiveness of American automakers and damage the US automotive sector, Zhang Xiang, secretary general of the International Intelligent Vehicle Engineering Association, told the Global Times on Friday.

China strongly objects to the US proposal to restrict the use of Chinese connected vehicles, as well as their software and hardware, in the US, the Ministry of Commerce said in September.

The proposal is one of a series of US actions that have targeted Chinese automobiles in recent years, including tariff hikes, procurement restrictions and discriminatory subsidy policies, said the spokesperson.

"China urges the US to cease its wrong practice of generalizing national security, immediately lift the relevant restrictions, and end its unreasonable suppression of Chinese companies," said the spokesperson.

China will take necessary measures to resolutely safeguard the legitimate rights and interests of its companies, the spokesperson added.