Made in China: What the Automotive Industry Should Know About the Global Emergence of Chinese Manufacturing of Connected Vehicles Amid Increasing U.S. Restrictions

China’s Global Assent in the Connected Vehicle Industry

China’s automotive industry has gone global, in no small part due to technological advancements, cost advantages, and foreign investment through joint ventures, particularly in electric vehicle (“EV”) and connected vehicle technologies. The Chinese government’s investment of over $29 billion in EVs and new energy vehicles (“NEVs”) from 2009 to 2022 alone – including through tax breaks, production subsidies, and other policies prioritizing manufacturing in automotive sectors and technologies – allowed China’s automotive industry to flourish.[1]

China’s favorable domestic policies are not the only driving force behind its success in the automotive industry. China’s manufacturing capacity and resilient supply chain networks make it a reliable source of both assembled vehicles and automotive components. Access to natural resources and technological advancements also played significant roles. In 2022, China accounted for 70% of the world’s production of rare earth minerals[2], which are essential for EV and connected vehicle components. Chinese EV companies have also been at the forefront of innovation, resulting in lower production costs and prices. For instance, in 2020, BYD launched its “blade battery” that utilized lithium iron phosphate (LFP) minerals as opposed to cobalt, which China had to import. BYD significantly improved the performance of these LFP batteries, allowing them to offer high-performance EVs at competitive prices. China’s dominance in the EV battery supply chain has allowed it to excel in other aspects of the international automotive supply chain as well.

As a result, China is now one of the world’s largest producers of automotive components, with a particular focus on innovative EV brands that are rapidly capturing market share outside Asia. Meanwhile, Western automotive companies have struggled to keep up despite the imposition of trade restrictions. Many major Western automotive companies are funding EV transitions and seeking to develop autonomous technology, but even as they have worked to ramp up sufficient domestic manufacturing capacity, they must continue relying on imports. Notably, the United States has been a major recipient of Chinese automotive vehicles, components, and accessories totaling $22.1 billion worth of imports in 2024 alone.[3] In parallel, Mexico, where many automotive components and vehicles are manufactured for use and sale in the U.S., has been the largest export destination for the Chinese automotive industry.[4] However, reliance on Chinese Tier I and Tier II suppliers of connected vehicle components may not be a viable option in the long term due, in part, to the Department of Commerce, Bureau of Industry and Security’s (BIS’s) new Connected Vehicles Rule. As such, U.S. automotive manufacturers and suppliers should take steps now to prepare for enforcement of the Connected Vehicles Rule.

The BIS Connected Vehicle Rule & Its Effects on the U.S. Automotive Industry

While the United States and China have recently agreed to roll back tariffs and export controls following bilateral negotiations, certain restrictions remain in place that are causing U.S. automakers to explore alternative sourcing streams to add resiliency to their supply chains. One such prominent example is the Department of Commerce’s Rule implementing the Information and Communications Technology and Services (ICTS) program. The ICTS program, administered by BIS, is meant to investigate national security-related threats posed by foreign adversaries to the U.S. supply chain for such technology and services. Under the program, BIS may prohibit certain types of transactions or transactions involving specific parties linked to foreign adversaries.

On January 14, 2025, BIS issued a Final Rule under the ICTS program, known as the Connected Vehicles Rule, that regulates the import and sale of connected vehicles and their components linked to foreign adversaries, namely China and Russia. “Connected vehicles” are meant to include those that integrate onboard networked hardware with automotive software systems to communicate via dedicated short-range communication, cellular telecommunications connectivity, satellite communications, or other wireless spectrum connectivity with any network or device.[5] The Connected Vehicles Rule went into effect on March 17, 2025, and sets out several general prohibitions:

Vehicle Connectivity System (VCS) hardware importers are prohibited from importing into the United States VCS hardware that is designed, developed, manufactured, or supplied by persons owned, controlled by, or subject to the jurisdiction or direction of China or Russia.[6]
Connected vehicle manufacturers are prohibited from importing into the United States or selling within the U.S. completed connected vehicles that incorporate covered software that is designed, developed, manufactured, or supplied by persons owned, controlled by, or subject to the jurisdiction or direction of China or Russia.[7]
Connected vehicle manufacturers who are owned, controlled by, or subject to the jurisdiction or direction of China or Russia are prohibited from selling in the United States completed connected vehicles that incorporate VCS hardware or covered software.[8]

“VCS” is defined in the Rule as a hardware or software system installed in a completed connected vehicle that directly enables radio frequency transmissions at a frequency over 450 megahertz.[9] “Covered software” includes application, middleware, and system software that enables the function of VCS or Automated Driving Systems.[10]

The software-related prohibitions will take effect on Model Year 2027 vehicles, with hardware-related prohibitions taking place on Model Year 2030 vehicles, or January 1, 2029, for hardware units not associated with a model year. As the vast majority of newly manufactured vehicles include connectivity systems, these prohibitions are meant to have a broad impact in an effort to secure the supply chain from software or hardware that may be utilized to gain access to sensitive information or cause remote disruption through the systems.

Some U.S.-based manufacturers have already begun taking initial steps to insulate their supply chains from Chinese imports in particular. General Motors, for instance, reportedly set a hard deadline of 2027 for its suppliers to eliminate all Chinese-sourced parts.[11] Tesla also recently announced a requirement that its suppliers remove Chinese components from the manufacturing process for cars made in the U.S.[12] Tesla has already replaced some China-made components with alternatively sourced parts and plans to completely phase out China out from its supply chain within the next year or two, consistent with the Connected Vehicles Rule timeline. The impact of this Rule and other U.S. restrictions on China’s market share of exported automobile components remains to be seen. However, the effect on U.S. sourcing operations and supply chain management is already apparent.

Keeping Pace While Avoiding Regulatory Pitfalls

Automakers and parts suppliers seeking to remain competitive in the U.S. market will have to do so while continuing to maneuver evolving geopolitical impacts and regulatory requirements. Ensuring supply chain diversity and stability will be essential in avoiding significant business disruptions. In addition to monitoring other regulatory developments and standards for connected vehicles, manufacturers should add to their compliance programs and implement robust screening procedures for suppliers to comply with the Connected Vehicles Rule. Correspondingly, suppliers should be prepared to certify that their components and software are not subject to foreign adversary-related prohibitions. U.S. manufacturers should continue to seek partnerships with foreign allies to gain access to technology and expand market reach. Ultimately, an expansion of U.S. manufacturing capacity will be needed to reduce reliance on foreign suppliers. While China’s advancement in the global auto space has been profound, the U.S. and its allies may be able to utilize government restrictions to their advantage.

[1] Zeyi Yang , How did China come to dominate the world of electric cars? MIT Tech. Rev. (Feb. 21, 2023), https://www.technologyreview.com/2023/02/21/1068880/how-did-china-dominate-electric-cars-policy/ (last visited Nov. 24, 2025); Jone Lorente Salaberria, The rise of China’s EV sector and its implications for the world, BBVA Research (Apr. 2023) https://www.bbvaresearch.com/wp-content/uploads/2023/04/The_rise_of_China_s_EV_sector_and_its_implications_for_the_world_WB.pdf (last visited Nov. 24, 2025).

[2] Xiaoying You, ‘They’re just so much further ahead’: How China won the world’s EV battery race, BBC (Nov. 15, 2025) https://www.bbc.com/future/article/20251110-how-china-won-the-worlds-battery-race (last visited Nov. 24, 2025).

[3] Sean Mullee, Automotive Vehicles, Parts, and Engines: Import Share by Country, 1999-2024. Bureau of Econ. Analysis (Jul. 25, 2025) https://apps.bea.gov/scb/in-focus/gsc/2025/0725-automotive-vehicles.htm (last visited Nov. 24, 2025).

[4] Megan Kelly, Chinese vehicle exports rise by 15% in 2025, with Mexico as biggest export market, Auto. Logistics (Nov. 14, 2025) https://www.automotivelogistics.media/vehicle-logistics/chinese-vehicle-exports-rise-by-15-in-2025-with-mexico-as-biggest-export-market/2128598 (last visisted Nov. 24, 2025).

[5] 15 C.F.R. § 791.301.

[6] 15 C.F.R. § 791.302.

[7] 15 C.F.R. § 791.303.

[8] 15 C.F.R. § 791.304.

[9] 15 C.F.R. § 791.301.

[10] Id.

[11] Mike Colias, Exclusive: GM wants parts makers to pull supply chains from China, Reuters (Nov. 12, 2025) https://www.reuters.com/business/autos-transportation/gm-wants-parts-makers-pull-supply-chains-china-2025-11-12/ (last visited Nov. 24, 2025).

[12] Tesla requires suppliers to avoid China-made parts for US cars, WSJ reports, Reuters (Nov. 15, 2025) https://www.reuters.com/business/autos-transportation/tesla-requires-suppliers-avoid-china-made-parts-us-cars-wsj-reports-2025-11-15/ (last visited Nov. 24, 2025).

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