Understanding the U.S. Connected Vehicle Security Act of 2026 in One Infographic. Source: Compiled and designed by eefocus Research Institute.
Introduction: The barriers erected by the United States against Chinese automobiles are escalating from high tariffs and administrative regulations to federal legislation. On July 15, with the committee review scheduled, U.S. restrictions on Chinese automobiles are shifting from administrative rules to long-term legislation. What truly warrants vigilance is a supply chain traceability system centered on vehicle origin, software development, chip manufacturing, and capital relationships.
On July 15, local time, the U.S. Senate Committee on Commerce, Science, and Transportation plans to review the Connected Vehicle Security Act of 2026 (S.4429). This bill was co-sponsored on April 29 by Republican Senator Bernie Moreno of Ohio and Democratic Senator Elissa Slotkin of Michigan. The House of Representatives subsequently introduced a companion version, H.R.8730.
As of July 13, S.4429 remains a draft bill. Committee review is just one step in the congressional legislative process; it must still pass the full Senate, the House of Representatives, and be signed by the President before it can become formal law. This status needs to be clarified. However, it has been co-sponsored by bipartisan lawmakers and publicly supported by industry forces such as General Motors, Ford, Stellantis, the United Auto Workers (UAW), and the Alliance for Automotive Innovation, indicating a high consensus within the U.S. auto industry on restricting Chinese automakers from entering the domestic market.
This is precisely where the significance of S.4429 lies. The final rule on connected vehicles issued by the Biden administration in 2025 has already made it extremely difficult for most Chinese brand passenger vehicles to enter the U.S. market. The new bill attempts to codify these rules into federal law while expanding the coverage of products, companies, and transactions. Even if the executive branch changes in the future, the policy will be difficult to revoke merely by an executive order.
From Tariffs to Software: The Door to the U.S. Market Is Already Mostly Closed
So far, Chinese automakers, despite making inroads elsewhere, have not achieved significant sales volume in the United States. A key reason is that the U.S. has continuously set up multiple barriers.
At the trade level, the Office of the United States Trade Representative raised the Section 301 tariff rate on Chinese electric vehicles to 100% in 2024. At the technology and national security level, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce issued the final rule on connected vehicles in January 2025, which took effect on March 17 of the same year. This rule prohibits the import of vehicle connectivity system (VCS) hardware with specific ties to China or Russia, as well as the import or sale of connected vehicles equipped with related VCS and autonomous driving system (ADS) software. The software restrictions take effect starting with model year 2027 vehicles, while the hardware restrictions primarily apply to model year 2030 vehicles. [4][5]
The current rules focus on how vehicles connect to external networks and who has the capability to control the corresponding hardware and software. Bluetooth, Wi-Fi, cellular communications, satellite communications, onboard communication units, and certain autonomous driving software are all within the regulatory scope. Even if Chinese automakers assemble complete vehicles in the U.S. or third countries, they may still lose sales eligibility if their corporate control relationships, software sources, or key connectivity hardware fail to pass the review.
On June 25, Chinese automaker brand Polestar announced that the BIS had not approved its exemption application submitted under the current connected vehicle rules, meaning the company will be unable to sell model year 2027 and later vehicles in the United States. Polestar can still sell existing inventory of the Polestar 3 and Polestar 4 and continue to provide services to existing users. The company also stated that Europe currently accounts for nearly 80% of its retail sales, and it will allocate more resources to markets such as Europe in the future.
This case demonstrates that administrative rules are not just on paper. Regulatory authorities can make specific rulings based on corporate equity, manufacturing, software, and supply chain relationships. If S.4429 is passed, similar restrictions will gain a more stable legal foundation, and the coverage may continue to expand.
What the New Bill Adds: 15% for Complete Vehicles, 25% for Hardware and Software
Compared to the 2025 BIS rules, the most significant change in S.4429 is expanding the scope of review from "transactions of connected hardware and software with ties to China or Russia" to vehicle origin, design location, manufacturing processes, and capital relationships.
The draft bill lists China, Russia, Iran, and North Korea as "covered nations." Starting January 1, 2027, if the country of origin of a connected vehicle is one of the aforementioned countries, or if the complete vehicle is designed in these countries, it shall not be imported, manufactured, sold, resold, or introduced into interstate commerce in the United States. Even if the relevant hardware and software are removed before import, or planned to be installed after import, it cannot automatically bypass the complete vehicle ban.
Equity review has been established as a quantifiable threshold. If a connected vehicle manufacturer is a joint venture, subsidiary, or other entity, and one or more entities from covered nations directly or indirectly own or control "more than 15%" of the equity, voting rights, board seats, or other control indicators, the vehicle may fall under the ban. The corresponding thresholds for software developers and connected vehicle hardware manufacturers are "more than 25%". The legal phrasing here is "more than," which cannot be simplified to "violating the rule upon reaching 15% or 25%."
The timeline largely aligns with the current rules: the ban on complete vehicles and related software starts in 2027, and the ban on connected vehicle hardware starts in 2030. The draft also requires companies to submit compliance statements before importing, manufacturing, or selling relevant vehicles and hardware, and allows the Secretary of Commerce to issue rulings, advisory opinions, and authorization lists for specific products and transactions. [2]
Penalties have been significantly increased. The draft stipulates that for each transaction violating the core ban, the civil penalty shall be no less than $1.5 million or five times the value of the transaction, whichever is higher; for violations lasting multiple days, each day may be considered a separate violation. The claim in the original material that "a minimum fine of $1.5 million per vehicle" is not rigorous; the calculation unit used in the bill is "transaction," and how a transaction is ultimately defined will depend on subsequent regulations and enforcement interpretations.
The draft also retains some buffer mechanisms. Specific items used for testing and evaluation can be exempted; repair and warranty hardware for models prior to model year 2030 are exempted; companies can apply for general or specific authorizations; existing exclusions and exceptions under the current BIS rules remain valid in principle and are planned to be re-evaluated starting in 2030. Therefore, summarizing this bill as having "absolutely no exemptions or transition arrangements" would also exaggerate its provisions.
Chips Are Named, but Not All Automotive-Grade Chips Face a Blanket Ban
For the semiconductor industry, the most critical content of the bill is hidden in the definition of "connected vehicle hardware."
The draft explicitly lists microcontrollers (MCU), microcomputers or modules, System on Chip (SoC), telematics and connectivity units, cellular communication modules, Wi-Fi and Bluetooth MCUs or modules, satellite communication systems, other wireless communication chips or modules, external antennas, digital signal processors (DSP), and FPGAs. Electronic systems directly related to battery monitoring, management, safety, or external communication, as well as airbags, gas generators, and seatbelt systems, are also included in the scope. [2]
This list covers a large number of chips in smart cockpits, T-Box, onboard gateways, communication modules, certain autonomous driving computing, BMS communication, and passive safety systems. However, the draft does not declare a blanket ban on all China-manufactured automotive-grade semiconductors entering the U.S. The boundary of judgment still depends on two points: whether the device directly connects to and supports the vehicle connectivity system, and whether it falls under the origin, manufacturer, and control relationships stipulated in the bill. Ordinary lighting drivers, window controls, or analog devices with no direct relationship to external communication cannot be deemed subject to S.4429 solely based on the phrase "Made in China."
This regulatory approach, which traces based on system function and origin, will bring more realistic pressure to OEMs and Tier 1 suppliers. A smart vehicle may have hundreds of ECUs, hundreds of millions of lines of software code, and multiple tiers of suppliers. For automakers to prove that a North American model is compliant, the scope of verification will extend from Tier 1 suppliers to chip manufacturing, firmware, algorithm models, development entities, board of directors, and equity relationships. Compliance statements transform supply chain traceability from a procurement management requirement into a potential legal liability.
Consequently, global automakers are more likely to adopt regionalized BOMs: models for the U.S. market will use a traceable hardware and software architecture cut off from covered nations; models for China, Europe, the Middle East, Southeast Asia, and Latin America will retain another set of solutions. The same platform will need to maintain different chips, different software branches, and different validation processes, which will increase R&D, certification, inventory, and after-sales costs. The logic of the automotive industry relying on global platforms to amortize costs in the past will be squeezed by new geopolitical rules.
For Chinese automotive chip companies, the direct loss may not first manifest as a sudden drop in U.S. orders. Chinese vehicle brands originally had limited sales in the U.S., and the U.S. OEM market has long been dominated by international chip manufacturers and local supply systems. The deeper impact comes from the risk appetite of multinational customers: as long as a certain Chinese chip enters the standard platform of a global Tier 1 supplier, and this platform may be used for North American models in the future, customers may demand replacement, separation, or more detailed proof of origin in advance. The difficulty for Chinese suppliers to enter international general platforms will increase accordingly.
Domestic substitution may accelerate as a result, but it will not happen automatically. Automakers' choice of chips still depends on functional safety, reliability, software toolchains, long-term supply, and cost. S.4429 reinforces the trend of regional supply chains and may also drive Chinese automakers to build a more independent hardware and software ecosystem; whether this process can be translated into orders for domestic chip manufacturers depends on whether the products pass automotive-grade certification and form the capacity for scaled delivery.
The U.S. Is Blocking the Entrance, but Competition Will Shift to Other Markets
In terms of sales volume, further blocking Chinese automobiles in the U.S. will have limited short-term impact on the fundamentals of China's auto exports. Data from the China Association of Automobile Manufacturers (CAAM) shows that in 2025, China's auto exports reached 7.098 million units, a year-on-year increase of 21.1%; NEV (New Energy Vehicle) exports reached 2.615 million units, a year-on-year increase of 103.7%. Under the combined effect of high tariffs and connected vehicle rules, Chinese brand passenger vehicles have already found it difficult to achieve scaled exports to the U.S. previously.
However, the symbolic significance and rule spillover of the U.S. market cannot be underestimated. It is a major global auto consumer market and a crucial node for automotive software, chips, testing and certification, and capital markets. Once the U.S. solidifies "technology origin" and "capital control relationships" as market access conditions, whether allies will follow suit and whether multinational automakers will proactively adopt stricter unified standards will both affect the global business of Chinese suppliers.
Meanwhile, the presence of Chinese automobiles in other markets continues to rise. Statistics from the European Automobile Manufacturers' Association (ACEA) show that in 2025, the EU imported approximately 1.0027 million Chinese-manufactured passenger vehicles, accounting for 7% of EU auto sales, of which 42.9% were battery electric vehicles; Chinese-manufactured vehicles accounted for 20% of EU battery electric vehicle sales. Europe already has anti-subsidy tariffs and local production requirements, yet it still retains market competition and investment channels, which differs from the U.S. approach of directly blocking complete vehicles, software, hardware, and control relationships.
Chinese automakers now need to face two parallel tasks: continuing to diversify export markets and advance overseas localization, while building more refined capabilities in technology, data, and equity compliance. After the North American entrance tightens, the strategic value of Europe, Southeast Asia, the Middle East, Latin America, and Canada will rise; these markets may also draw on U.S. or European rules to form their own cybersecurity, data, and origin requirements. Relying solely on low prices and export scale will hardly support the next stage of globalization.
Conclusion: The Auto Supply Chain Begins to Be Divided by "Technology Nationality"
S.4429 has not yet become law, and the committee review on July 15 may also see revisions. How the 15% and 25% control thresholds apply to complex transnational equity, how a single "transaction" is defined, and which products can obtain authorization remain to be clarified by congressional texts and subsequent enforcement rules. Whether specific multinational automakers trigger the ban cannot be concluded simply by adding up the shareholding ratios of a few Chinese shareholders.
The policy direction is already quite clear. U.S. auto policy towards China is forming a three-tier defense line of tariffs, connected vehicle rules, and congressional legislation. Where the complete vehicle is assembled is no longer the only standard; who develops the software, who manufactures the chips, and who controls the enterprise may all determine whether a vehicle can enter the market.
This will cause the global automotive industry to incur higher costs for redundant R&D and supply chains, and push Chinese automotive and semiconductor enterprises towards more thorough regionalized operations. The U.S. market itself may not be the largest sales gap for Chinese automakers at present; the "technology nationality" rules the bill attempts to establish represent the more lasting impact in this game.