U.S. to Impose Limits on Chinese Vehicle Software Over Data Security Concerns

The U.S. is poised to escalate its technological rivalry with China by targeting the rapidly growing sector of autonomous and internet-connected vehicles. The Biden administration is set to propose new restrictions on the sale of Chinese vehicle software in the U.S., a move driven by concerns over data security risks associated with smart cars. According to sources familiar with the matter, these restrictions could be introduced as soon as this month.

The proposed limits would not only affect the use and testing of Chinese technology in autonomous vehicles but also address the broader cybersecurity risks posed by vehicles equipped with internet-connected devices. These devices, increasingly common in both gas and electric vehicles, make cars potential targets for hacking. The planned measures stem from an investigation launched by President Joe Biden in March, focusing on the cybersecurity threats posed by Chinese vehicle software.

China has rapidly become a global leader in the electric vehicle (EV) market, thanks to substantial government subsidies and support. Companies like BYD Co. have even surpassed Tesla Inc. in electric vehicle sales in recent quarters. As a result, global automakers have grown increasingly reliant on Chinese suppliers for technology critical to connected vehicles.

Despite their success, Chinese automakers like BYD have had limited market presence in the U.S., partly due to a 27.5% tariff imposed by former President Donald Trump, which President Biden announced in May would increase to over 100%. The new restrictions on internet-connected vehicle technology are intended to prevent Chinese-made cars from gaining a significant foothold in the U.S. market. The move would also protect American drivers from potential data collection by Chinese companies, which could be transmitted back to China.

The proposed restrictions, which would be enforced by the Commerce Department, may include a phase-in period to give automakers time to adjust their supply chains and find new domestic or allied suppliers. The specifics of the proposal are still under discussion, according to sources who spoke anonymously about the confidential deliberations.

Commerce Under Secretary for Industry and Security Alan Estevez hinted at the scope of these potential measures during a July conference, indicating that the agency was evaluating both vehicle software and components, with findings expected later this month. The Commerce Department has confirmed its concern over the national security risks posed by connected technologies in vehicles and plans to issue a proposed rule focused on "specific systems of concern." Industry stakeholders will have an opportunity to comment on the proposed regulations once they are released.

International industry groups, including those from the German automotive sector, Ford Motor Co., and the Korean government, have urged the Biden administration to limit the scope of the potential regulations and allow automakers sufficient time to adapt their supply chains. A recent U.S.-hosted summit on connected vehicles included representatives from Australia, Canada, Germany, the European Union, India, Japan, South Korea, Spain, and the UK.

Commerce Secretary Gina Raimondo raised the issue with Chinese officials during her August 2023 visit to China. She later told U.S. lawmakers that Chinese-made vehicles, controlled by software from Beijing, can collect extensive data on drivers, including location and conversations, which are then transmitted back to China. Beijing has dismissed these security concerns as baseless and accused the U.S. of unfairly targeting Chinese companies.

The U.S. Defense Department has already taken action by banning the Chinese lidar manufacturer Hesai Group, with further scrutiny on lidar technology expected in the future. The upcoming measures will likely focus on software and systems that collect vehicle data, with potential future restrictions on hardware for connected and autonomous vehicles.