Major global automakers are pressing Congress to turn the United States’ existing restrictions on Chinese-connected vehicles into permanent federal law, escalating a policy fight that could reshape which automakers, technologies and suppliers are allowed to participate in the American vehicle market.
The Alliance for Automotive Innovation, whose members include General Motors, Ford, Toyota, Volkswagen, Hyundai, Honda, Stellantis and other major manufacturers, called on lawmakers Thursday to pass legislation before Congress adjourns for the year. Alliance President and CEO John Bozzella argued in a letter to congressional leaders that Chinese automakers are expanding internationally with heavily subsidized vehicles containing connected software and hardware, and urged lawmakers to “make this policy the law of the land.”
The request centers on the Connected Vehicle Security Act of 2026, a bipartisan bill introduced by Republican Sen. Bernie Moreno of Ohio and Democratic Sen. Elissa Slotkin of Michigan. The Senate Commerce Committee unanimously advanced the legislation in July, moving it toward consideration by the full Senate. A companion measure, H.R. 8730, was introduced in the House in May by Republican Rep. John Moolenaar of Michigan and Democratic Rep. Debbie Dingell of Michigan.
The legislation would go considerably further than simply imposing tariffs on Chinese cars. It is designed to restrict vehicles themselves along with software, communications systems, automated-driving technology and eventually certain hardware associated with designated foreign adversaries.
Under the Senate bill as introduced, connected vehicles originating in or designed in China, Russia, Iran or North Korea would be prohibited from importation, manufacture or sale in the United States beginning January 1, 2027. The measure also targets manufacturers with more than 15% of their equity, voting interests, board representation or other measures of control held directly or indirectly by entities from those countries.
Software faces a separate ownership threshold. Beginning in 2027, covered software would be restricted when its developer is based in a covered country or more than 25% owned or controlled by entities tied to one. Connected-vehicle hardware would face similar restrictions beginning January 1, 2030. Covered technology extends to components such as cellular modems, Wi-Fi and Bluetooth systems, telematics equipment, satellite-communications technology and certain battery-management systems.
That distinction is important for investors because the legislation is not aimed exclusively at brands such as BYD or SAIC Motor. Depending on the final wording, it could affect established Western manufacturers, component suppliers and technology companies whose ownership structures or supply chains have substantial Chinese involvement.
Mercedes-Benz has become one of the clearest examples.
Senate Commerce Committee Chairman Ted Cruz has warned that the bill’s 15% ownership test, as currently structured, could capture Mercedes-Benz even though the German automaker is not controlled by a Chinese company.
Mercedes-Benz says China’s BAIC Group holds 9.98% of its voting rights, while Chinese investor Li Shufu holds another 9.69% through Tenaciou3 Prospect Investment Limited. Together those stakes represent about 19.67% of Mercedes-Benz, above the threshold contemplated in the Senate proposal. Cruz has said the legislation will require changes before it can become law, illustrating one of the biggest unresolved questions as the measure moves forward.
Moreno has argued that the measure is not intended to remove Mercedes-Benz from the American market and has pointed to implementation lead times and a waiver process. The dispute nevertheless matters because it shows how legislation initially framed around Chinese automakers could reach multinational companies with complex cross-border ownership structures.
Automakers are also asking Congress to limit the Commerce Department’s ability to grant exemptions. In an earlier letter to lawmakers, the Alliance for Automotive Innovation specifically sought restrictions preventing Commerce from issuing authorizations that could allow Chinese automakers including BYD, Chery and SAIC Motor to manufacture, import or sell covered vehicles in the United States.
The industry’s push comes even though Washington has already created a regulatory barrier to Chinese-connected vehicles.
The Commerce Department’s Bureau of Industry and Security finalized its Connected Vehicles Rule in January 2025, and the regulation took effect in March of that year. The rule restricts connected vehicles and technologies with sufficient ties to China or Russia because federal officials concluded that foreign access to those systems could create national-security risks, including the collection of sensitive driver information or remote manipulation of vehicles.
Software restrictions and prohibitions affecting manufacturers sufficiently connected to China or Russia begin with model-year 2027 vehicles. Restrictions on covered vehicle-connectivity hardware begin with model-year 2030 vehicles, or January 1, 2029 for certain hardware without a model year. The Commerce Department’s definition of vehicle-connectivity systems includes technologies using Bluetooth, cellular networks, Wi-Fi, satellite communications and telematics.
Congressional action therefore would not create the U.S. crackdown from scratch. Instead, it would make the restrictions more difficult for a future administration to reverse and could broaden or tighten parts of the existing regulatory framework.
The financial consequences of the current rule are already visible.
Polestar, the Swedish EV manufacturer backed by China’s Geely Holding, said in June that the Commerce Department declined to give it authorization to sell model-year 2027 and later vehicles in the United States. Polestar can continue selling existing U.S. inventory from earlier model years and supporting current customers, but it expects new-vehicle sales in the country to end once that inventory is exhausted.
The company provided a clearer picture of the financial impact Thursday when it reported first-half 2026 results.
Polestar generated $1.36 billion in first-half revenue, down 4.4% from $1.423 billion a year earlier, despite retail sales edging 0.4% higher to 30,423 vehicles. Its operating loss narrowed 42.6% to $629 million from $1.096 billion, although much of that year-over-year improvement reflected the absence of a large impairment charge recorded in 2025. Adjusted EBITDA deteriorated to a $521 million loss from a $302 million loss.
Polestar estimated that its U.S. operations increased its first-half operating loss by approximately $211 million and said roughly $130 million of negative adjustments were connected to the Commerce Department decision and resulting U.S. restructuring. Those costs included changes involving inventory valuations, residual-value guarantees, employees and suppliers.
The company also reduced its 2026 volume-growth forecast to a low-to-mid-single-digit percentage from its previous expectation for low-double-digit growth. Polestar shares fell sharply following the earnings release and reduced outlook, providing investors with a real-world example of how the connected-vehicle restrictions can move beyond policy debate and affect company earnings, restructuring costs and market valuation.
For General Motors, Ford and other manufacturers with large U.S. operations, permanently restricting Chinese vehicle entrants could reduce the possibility that low-cost Chinese competitors challenge them directly in the American market. That is an investor implication rather than a guaranteed outcome: competition among existing manufacturers remains intense, while tariffs, higher manufacturing expenses, changing EV demand and supply-chain costs continue to influence profitability.
The policy may also create costs for companies that have spent decades building globalized automotive supply chains. Automakers will increasingly need to know not only where a component is manufactured but who owns the supplier, where software was developed, what communications technologies are embedded inside a vehicle and whether Chinese entities hold ownership or control anywhere along the chain.
The legislation’s national-security argument centers on those connected systems. Modern vehicles routinely transmit location, performance and other data while receiving software updates and communicating with external networks. Supporters of the restrictions argue that allowing companies subject to Chinese government authority to control those systems could create surveillance, cybersecurity and infrastructure vulnerabilities. The legislation itself cites potential risks including espionage, cyber intrusion and disruption of critical infrastructure.
China has opposed U.S. attempts to restrict its vehicle exports. The Chinese Embassy did not immediately provide a new response to Thursday’s industry letter, according to the original report.
For markets, the next major question is whether Congress can resolve the legislation’s unintended effects without weakening the restrictions enough to lose industry or bipartisan political support.
Investors should watch whether the full Senate schedules S. 4429 for a vote, whether lawmakers modify the controversial 15% ownership threshold, how broadly Commerce would retain authority to grant waivers or specific authorizations, and whether the House advances H.R. 8730. The treatment of Mercedes-Benz will be an especially important indicator of how lawmakers intend to distinguish passive Chinese investment from meaningful Chinese control.
The approaching model-year 2027 restrictions are also becoming increasingly important for automakers and suppliers. Polestar has already demonstrated that the rule can force a company to restructure an entire geographic market. As that deadline approaches, additional companies may have to alter software relationships, supplier contracts, ownership structures or product plans to maintain access to the United States.
For U.S. automakers, that potentially means another layer of protection from Chinese competitors. For companies with significant Chinese investors or technology exposure, however, the same policy could become a substantial regulatory, supply-chain and earnings risk long before Chinese-branded vehicles ever reach American dealerships.