Foreign spy cars? The US government does not play with Robotaxis.

Some Chinese automakers are focusing on driverless vehicle technology to develop robotaxis. But the US government is about to rein in Chinese testing of driverless vehicles in the US market over national security concerns. Here are the details and why it’s a big deal.

Going all-in

China seems to be pressing the accelerator when it comes to the development of driverless vehicles. It makes sense, given that China accounted for nearly 62% of the 10.4 million battery-powered electric vehicles (EVs) that were manufactured globally in 2023; EVs are easier to adapt to driverless technology. For context, the US ranked second and produced just 1 million, according to GlobalData.

Already, Chinese companies are experimenting heavily with driverless technology in their home market, with plans to continue this research abroad. Baidu operates a fleet of 500 robot taxis, often found without safety drivers, for emergencies in Wuhan, China. The company notes that it plans to add another 1,000 vehicles. Sixteen or more Chinese cities have allowed Chinese companies to test driverless vehicle technology on public roads as their industry tries to control global driverless driving.

Here’s why, and perhaps part of the reason, the US government is about to step in. Chinese companies have set up research facilities in the US and Europe and are sending data and research back home, where they are not allowed to leave the country.

The US response

The US Commerce Department is expected to propose a policy in August that would ban Chinese software in driverless and connected vehicles. Specifically, the Biden administration wants to propose a policy that would ban Chinese software in U.S. vehicles that possess Level 3 or higher automation, as well as vehicles with advanced wireless communication capabilities developed by China.

In the 12 months ending in November 2022, Chinese driverless vehicles tested more than 450,000 miles in California with autonomous vehicle technology, raising concerns about connected vehicles using driver monitoring systems to listen, record or control the vehicle.

“The national security risks are quite significant,” Commerce Secretary Gina Raimondo said in May, according to Autonews. “We decided to take action because these are very serious things.”

Why it matters

For investors, the long-term ramifications could be huge. The political potential of the US government could slow down China’s ambitions for driverless technology, especially for automakers such as Nopewhich announced navigation on pilot (NOP) and autonomous driving as a service (AdaaS) for its ET7 sedan. The policy could certainly hamper growth plans for the Chinese carmaker BYDwhich just announced a deal with Uber technologies to bring 100,000 electric vehicles to the latter’s fleet.

US companies that could benefit from the potential policy would be adze (TSLA 0.58%), General Motors (NYSE: GM)and Alphabetit’s Waymo. while Ford Motor Company and Volkswagen Throwing in the towel on the development of driverless vehicle technology, Tesla could bounce back from its delayed unveiling of its robotaxi, which will now take place in October, and face less competition. It would also give General Motors more time to recover from halting cruise operations.

Finally, it will be increasingly important for investors to watch a series of automotive developments between the US and China as well-built, highly affordable and also heavily subsidized Chinese electric vehicles try to penetrate the market American with or without driverless technology. The U.S. government is currently stepping in because allowing this right now could cripple American electric vehicle and autonomous development in the short term — and that would be bad news for many investors.