Rhodium: Scope of Connected Cars Rule Likely to Expand
Two analysts from Rhodium Group said it's quite possible the Commerce Department will give "special authorization" to Volvo and Polestar so that those cars, manufactured in the U.S., can still be sold in 2027 and beyond.
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The Commerce Department issued a notice of proposed rulemaking on connected vehicles that said companies that use hardware or software that facilitates communication with GPS satellites and drivers' cell phones or systems that allow driverless operation cannot be sold in the U.S. if certain goods in those systems come from China or Russia (see 2409220001) or if the cars themselves are made by a Chinese-owned firm.
"US policymakers don’t want to lose the jobs associated with Volvo’s US footprint, nor do they want to deny Americans -- who are more likely to associate Volvo with its Swedish branding than its Chinese ownership -- a popular consumer choice," wrote the authors of this week's "Car Trouble: ICTS Rule Rewires Global Auto Supply Chains."
"Some Chinese firms could try to adopt novel corporate structures to create distinct entities outside Chinese control to access the US market. However, the expansive definition in the ICTS rule over what constitutes indirect state influence over an entity means any such move to circumvent the rule would come with substantial risks," they wrote.
Nearly 20% of Volvo's sales are in the U.S., they noted. "We expect intense boardroom dynamics ahead as the firm negotiates a special authorization with Commerce and debates whether its corporate structure is fit for the geopolitical times."
The research report notes that certain elements of the connected cars' systems affected by the rule are not targets of the ban, but the authors say they expect the scope to expand over time.
They said Chinese manufacturing for LG, Marelli and Continental will have to be revisited, and said they think it's likely that Ford, General Motors, Stellantis, Toyota, Honda, Nissan and Hyundai/Kia will either bifurcate those telematics supply chains or cut Chinese firms out of them, even for their China-destined cars. What Volkswagen and other German carmakers will do is less clear, they said, as VW sells far more cars in China than it does in the U.S.
"The German carmaker’s calculus of ‘if you can’t beat ’em, join ’em’ in partnering with Chinese firms collides directly with a US political calculus of carving out ex-China trade and tech blocs for connected vehicles," they wrote.
They said they expect Commerce to award special authorizations to keep importing otherwise banned hardware "so long as they show progress toward diversifying away from China," and later, to phase in more restrictions on autonomous driving system hardware, such as chips and LiDAR systems.
While multinational companies' "compliance teams have their work cut out for them to audit supply chains, executive boards and strategy teams will also need to invest in rigorous scenario planning to inform their next move," they concluded.