The prohibition on Chinese technology would make new cars even more expensive.

      Sjoerd van der Wal/Getty Images

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      There’s significant movement in the government currently aimed at excluding vehicles with connections to China—whether through investments or technology—from the U.S. market. A Senate committee approved a bill yesterday that would prevent manufacturers that are over 15% owned by Chinese entities from operating here. Concurrently, another proposal aims to remove components sourced from China from vehicles sold in the U.S. This situation has led Polestar to decide to exit the market, which unfortunately is likely to drive up the prices of the remaining vehicles.

      A recent report from Reuters highlights the efforts of an automotive electronics startup in Ohio, Eagle Wireless, that is trying to grow quickly enough to meet the anticipated demand when car manufacturers can no longer rely on China for many parts. Companies like Eagle Wireless are expected to gain greater significance if the government goes ahead with its plans to eliminate certain Chinese-made hardware from cars sold in the U.S. beginning in 2030. (An upcoming ban on software, effective next year, is the reason behind Polestar's departure and Volvo's exemption.)

      Eagle is aware of the opportunity in front of it, but there is considerable work ahead—not just to increase production, but also to achieve some level of cost competitiveness. The company states that its modules are still priced 5% to 15% higher than comparable parts from China. The components targeted by the law primarily involve communication and location tracking. One former auto executive from Detroit remarked to Reuters, “I was shocked by the price difference” when comparing an ADAS system made outside China to one imported from there.

      A Polestar showroom in Beverly Hills, California. Justin Sullivan/Getty Images

      As expected, this situation could cause new car prices in the U.S. to rise, which have already surged since the beginning of this decade and during the COVID pandemic. Cox Automotive reported that the average transaction price of a new vehicle yesterday was $49,456.

      Some automakers will be more vulnerable than others. For instance, Rivian's software chief mentioned to Reuters that the electric truck manufacturer may navigate the challenges better than many others due to its ability to switch suppliers more easily. The number of vehicles sold also affects the severity of this issue, which might explain why Ford sought permission to continue importing models like the Lincoln Nautilus, which is produced in China.

      However, that effort may have hit a snag, as Republican Senator Bernie Moreno of Ohio, who helped draft the investment ban bill, stated on Wednesday that Ford had agreed to shift production of these vehicles to the U.S. after all.

      The situation is further complicated by the fact that even locally produced parts may rely on licenses from other countries, including Chinese companies, and the hardware ban applies to those as well. Just last month, Ford started manufacturing batteries in Michigan using technology licensed from CATL, a Chinese company. Completely removing China from today’s complicated vehicle supply chain is clearly a challenge, but the extent of the difficulties won’t be fully understood until we are several years into this process.

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