New U.S. rules will ban Chinese software in internet-connected vehicle systems due to national-security reasons. According to the Wall Street Journal, by March 17, carmakers will need to prove that their products do not contain code that was written in China or by a Chinese company. Many of the internet-connected systems in automobiles contain Chinese technology that provides data to the cloud. The new rules will prevent cameras, microphones, and GPS tracking in cars from utilizing Chinese software. The requirement is non-trivial in that it requires a detailed examination of supply chains and has a tight timeframe for compliance. Connected cars made by Chinese or China-controlled companies are also banned. The United States will extend the requirement to connectivity hardware beginning in 2029.
As the Journal explains, carmakers typically buy electronics from big suppliers, which have, at times, sourced software from smaller suppliers or joint ventures in China. Therefore, the details of the entire supply chain may not be readily available. Even when the use of Chinese software is clearly identifiable, it can be difficult for automakers to switch to an alternative. Automotive code tends to be tailored to the application, making it risky to change it on existing vehicles.
The new rule has resulted in corporate restructuring. According to the Journal, global suppliers are relocating China-based software teams, while Chinese companies are seeking new owners for operations in the West. For example, Italian tiremaker Pirelli, whose largest shareholder is Chinese chemicals giant Sinochem, has its “smart tires” connected to the cloud. Options for compliance include Sinochem reducing its 34% stake and segregating the financial assets and operations of the U.S. smart-tire business from the rest of the organization.
As in many other technological areas, Chinese manufacturers increased their global dominance of cellular modules, where their market share increased to 87% in the first half of 2025, up from 69% in 2019. The Journal explains that China’s global dominance of the supply chain for connected devices is akin to the U.S. reliance on Chinese rare earths and its security concerns about the telecommunications company Huawei. The Bureau of Industry and Security team responsible for the connected-car rule is planning to expand its clampdown on Chinese technology to other products, including commercial vehicles.
Another area gaining Chinese dominance is the electric vehicle (EV) industry. As China’s oil resources are limited, EVs were pushed by the government with subsidies for manufacturers and incentives for purchasers that quickly developed a huge domestic market and a large number of carmakers that needed to expand their territory overseas. With vastly competitive prices, China’s cars represented 11% of Europe’s EV market and 20% of its plug-in hybrid sales in September. China is also making inroads in South America’s auto market. And Mexico had to up its tariff on China’s electric vehicles to 50% — at the urging of President Trump, who feared their entrance into U.S. markets via Mexico — to slow their market penetration.
Recently, Stellantis announced a $26.5 billion write-down tied to scaling back EVs after the U.S. market failed to live up to demand expectations and massive federal subsidies expired. The Stellantis write-down was higher than Ford’s $19.5 billion hit in late 2025, and General Motors’s write-down of about $12 billion, including a $7.6 billion loss in the fourth quarter of 2025. European auto companies had similar financial woes. For example, Volkswagen is cutting German jobs by 30% by 2030.
Analysis
Western nations have been growing concerned about the deployment of “green energy” devices in their countries. According to commentary from the RAND Corporation, “Foreign automakers and energy operators relying on Chinese batteries are not just importing physical components; they are importing foreign-controlled code that dictates how critical assets operate, and that may be updated based on a vendor’s schedules, through vendor platforms, and under vendor policies.” Fortunately for the U.S., our wealth of natural resources can supply the transportation and power generation industries without significant reliance on devices from China; however, this advantage is hindered by state and federal regulations requiring the transition to “green” energy sources and EVs.
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