US proposal to ban Chinese software in connected vehicles could affect consumers

The US Commerce Department’s proposal on Monday to ban the sale of internet-connected vehicles with Chinese and Russian software and hardware on American roads could affect consumers and US car makers, possibly leading to higher prices.

The proposed measure aims to protect national security, as the threat is “very real”, and to ensure the safety of the US drivers, the agency said.

It focuses on vehicles that can communicate remotely with external systems through satellite networks, mobile connections, Wi-Fi or Bluetooth – capabilities that are becoming standard in all modern vehicles.

The software restrictions would take effect in the 2027 model year, while the hardware ban would be implemented starting with the 2030 model year, or by January 1, 2029, for vehicles without a designated model year, the agency said.

“This is not about trade or economic advantage. This is a strictly national security action,” said Gina Raimondo, the US Secretary of Commerce.

“We are focused on the national security threat, very real threat, that connected vehicles pose to our country and the American people … the good news is right now, we don’t have many Chinese or Russian cars on our road.”

A foreign adversary, in a worst-case scenario, could gain control of several vehicles across the US at the same time, leading to accidents and roadblocks, disrupting traffic and endangering public safety, Ms Raimondo said.

She said the proposed move is important because various parts of modern connected vehicles, such as sensors, cameras, Bluetooth, microphones and GPS tracking, could expose sensitive personal data of drivers and their families, making them easy targets for malicious hackers.

After the rule is proposed, the Commerce Department allows a 30-day public comment period following its publication. If implemented, this rule could ban almost all Chinese cars from entering the US market.

Impact on consumers

The proposed move “could hit consumers hard”, industry experts said.

“Moreover, most of the significant data breaches in the US automotive industry are due to poor development practices, human error, and lax standards,” said Yashin Manraj, chief executive of US-based technology maker Pvotal Technologies.

It will push US makers into a “false sense of security about their current operations and will further add to their technical debt with poor quality software”.

“As US car makers fall behind in the innovation cycles, they will face a decreasing interest in the global market, especially as China is poised to take over key markets in Asia, Africa and the Middle East as the preferred vendor of connected vehicles.”

The latest proposal follows an investigation that began in February to assess whether Chinese-made vehicles and their associated software and hardware could pose a risk to the US security.

The inquiry was driven by the growing volume of personal data that modern vehicles collect, including location information, driving patterns and even biometric data.

US officials fear that adversaries could exploit this data for espionage, cyber attacks or other disruptive acts. China presents a “particularly acute and persistent threat” to the US information and communications technology and services supply chain related to connected vehicles, the Department of Commerce said.

China has repeatedly denied such allegations.

Potential nightmare for US car makers

In the short-term, the move would create a “logistical nightmare” for US car makers as they have to “audit, re-engineer, and select new supply chains”.

“While there was no clear mention of how the after-market industry will be regulated, there will be challenges for companies that specialise in customising vehicles or how future vehicles will be fixed given the limited car maker inventory … this may lead to a temporary increase in price and delays in production,” Mr Manraj said.

Moving from Chinese-made hardware will be challenging for US car makers due to its deep integration into global supply chains.

For example, Detroit-based General Motors' Buick Envision is produced in China and has been imported into the US market since 2016.

In April 2023, Ford announced the next-generation Lincoln Nautilus model would be made in China and exported to the US starting with the 2024 model year. Previous Nautilus models were built in North America.

Tesla has also linked up with Chinese companies such as Catl for battery supplies. However, the new rule will not affect its US models, as they do not rely on Chinese-made hardware. The vehicles sold in the US primarily use batteries made in Japan and South Korea.

The US has been diversifying its supply chain by working with sellers from Taiwan, South Korea and Europe for the past few years.

“Investments are being made to develop plants in Mexico, South America, and in the Philippines over the next five years to further de-risk any reliance on Chinese suppliers,” Mr Manraj said.

Previously, the US and European officials have accused China of offering unfair subsidies to its firms in a bid to disturb the market.

In May, the US announced it would be imposing 100 per cent tariffs on imported Chinese EVs and 25 per cent on EV batteries, as part of a series of measures aimed at protecting manufacturers in the world's biggest economy.

Canada said in June it was considering similar measures. In July, the EU also began executing its tariffs on China for EV imports.