US Commerce Department Proposes Ban on Chinese Software and Hardware in Connected Cars, Tesla Emerges as Main Target

US Commerce Department Proposes Ban on Chinese Software and Hardware in Connected Cars, Tesla Emerges as Main TargetOn September 24, it was reported that the US Commerce Department proposed a ban on the use of Chinese software and hardware in connected and self-driving cars on American roads. While this ban ostensibly seems to be a major blow to China's burgeoning electric vehicle industry, its implications are actually more concerning for American automotive giant Tesla

US Commerce Department Proposes Ban on Chinese Software and Hardware in Connected Cars, Tesla Emerges as Main Target

On September 24, it was reported that the US Commerce Department proposed a ban on the use of Chinese software and hardware in connected and self-driving cars on American roads. While this ban ostensibly seems to be a major blow to China's burgeoning electric vehicle industry, its implications are actually more concerning for American automotive giant Tesla.

Gina Raimondo, the US Secretary of Commerce, raised anxieties this week by suggesting that American vehicles could be remotely controlled. She claimed, In extreme circumstances, a foreign power could potentially simultaneously shut down or control all of their vehicles operating in the United States. Raimondo argues that vehicles are now equipped with internet-connected cameras, microphones, GPS tracking, and other technologies that, if in the wrong hands, could pose a severe threat to American national security and citizen privacy.

To counter this risk, the US Commerce Department has proposed prohibiting the import and sale of cars that rely on Chinese software and hardware for internet connectivity. This ban would also cover Russian suppliers, coming into effect for new models starting in 2027 and becoming more stringent from 2030 onwards. Microchips used for receiving and transmitting location information, traffic data, or for self-driving technologies would be prohibited. The proposed ban could also encompass vehicles that utilize Chinese technology for keyless unlocking.

While on the surface, this ban seems to be a significant setback for the expansion of Chinese electric vehicle companies in the US, in reality, its impact might be limited. This is because Chinese next-generation electric vehicles are barely present in the US market, being more prevalent in the UK and European markets.

In May, US President Biden announced an increase in tariffs on Chinese electric vehicles from 25% to 100%, effectively doubling the cost of Chinese vehicles and driving them out of the US market. Canada also implemented a 100% tariff on Chinese electric vehicles. The new software ban essentially amounts to a ban on vehicles that nobody would buy due to their exorbitant price.

Experts warn that China could retaliate. Bill Russo, founder and CEO of Shanghai-based investment advisory firm Automobility, stated that any ban could "trigger reciprocal measures" that would impact US businesses in China.

While the extent of the specific impact remains uncertain, the most apparent target is Tesla. As the world's second-largest electric vehicle manufacturer, Tesla sold over 600,000 electric vehicles in China last year. Meanwhile, BYD, the world's largest electric vehicle manufacturer, has not yet sold its vehicles in the US.

Geoffrey Gertz, a senior fellow at the Center for a New American Security, warns that China could now target Tesla. Gertz states, "US automakers are not significantly affected by this ban, and there are already measures in place to exclude Chinese EV manufacturers Its hard to predict what Chinas retaliation would be specifically, but its safe to say Tesla has a presence in the Chinese market, and Im guessing China would take some action.

The issue hinges on swing states. Detroit, Michigan, is the center of the American auto industry, and Michigan is a crucial swing state. Musk has supported Trump's political campaigns via his social media platform X, and the White House might not be troubled if China retaliates against Tesla.

Professor Wei Song Shi, the Director of the Connected and Automated Research Lab (CARLab) at the University of Delaware, says, Due to the high tariff issue, there hasnt been much Chinese EV in the US right now." "The latest ban covers the software in future connected and autonomous driving cars, so we will not see Chinese-made software in the US market in the future. This will be a huge challenge for China. I am not sure whether China will retaliate, but they probably will. You can imagine, Tesla cars operating in China, the software they run is Tesla's own development, that could be a direction for China to take action.

Musk, known for his outspoken nature on social media platform X, has yet to comment on the proposed ban. Tesla has also declined to comment on the matter.