CHINA is catching up in the race to build and deploy technology, so its preeminent position in electric vehicles (EVs) and batteries makes for notable success on the world stage.
Expect US political leaders to fight back, not with better products or pricing, but non-tariff barriers.
One measure from the Biden administration will be to put restrictions on how tax subsidies for EVs can be applied.
Under new rules, a US$7,500 federal credit to consumers might not apply if the vehicle contains battery materials from a “foreign entity of concern.” That’s code for China.
Ordinarily, such a curb would be an annoyance, though not insurmountable. But with batteries, especially the massive packs that go into a car, it’s difficult to avoid Chinese input in the short term.
The hope is that in future, US vehicle makers and those from friendly nations who hope to sell in America will build local supply chains.
It might not work: Vendors in Japan, South Korea and Taiwan are quickly developing battery technologies and finding non-Chinese sources of components to go into cars sold to the United States.
If policymakers take the view that China is a hostile competitor and they don’t want US money bolstering a rival economy, then these new curbs will probably be effective, although to a limited extent. But there’s a key loophole left open that is sure to be exploited.
Companies like BYD Co and Geely Automobile Holdings Ltd can just buy targeted components from another nation and still sell the final vehicle or key parts to the United States – without Chinese-sourced items of concern.
Doing so would upend the clear edge many of them have in vertical integration – BYD supplies everything from batteries to completed cars – but their advantage throughout the supply chain would ameliorate the impact.
In this scenario, Chinese vendors can still collect significant revenue from the United States, limiting the effect of a “no money to China” policy.
BYD has said that the United States isn’t among its plans for expansion. But other Chinese automakers are already in the country.
Geely owns well-known names including Volvo, Lotus and Polestar with EVs on sale in the United States, while New York-listed XPeng Inc and Nio Inc are testing autonomous driving on American roads.
It won’t take long for the US political establishment to wake up and make its next move. On the surface, cars seems pretty innocuous. But then you realise that the average vehicle, with varying levels of driverless autonomy, has more than 200 sensors.
Most are pretty boring – measuring interior temperature or whether your seatbelt is fastened. Yet dozens have military-grade capabilities, such as light-detection and ranging known as LiDAR.
If you were to ask the director of any security agency whether they’d be happy having a Chinese operative driving around US streets taking photos of everything they see, you can be sure of the answer.
That’s precisely the capability modern EVs have. Just check out the hundreds of YouTube videos demonstrating Tesla’s Sentry Mode.
The US government might be cool with Tesla Inc being able to take real-time video from millions of cars, but Beijing isn’t and earlier this year banned models from an airport in Hunan province because of the Sentry Mode feature.
Tesla responded by noting that the video is only stored on a USB stick within the car, and that the US company saves all other data collated from China on local servers.
Recording and storing real time sensor data such as video is not just a marketing gimmick to make vehicles appear safe from thieves.
This information is a crucial component of the artificial-intelligence models carmakers are building as they march toward the goal of offering fully autonomous driving. This data is useless on a USB drive and needs to be fed back into the massive server farms each company operates.
Whether for autonomous driving or enhanced driver safety, video cameras feeding data to central servers are an unavoidable component of modern EVs, wherever they’re made. Sensors on a model from Tesla or General Motors Co make those vehicles advanced and safer.
On a Chinese brand, they become a spy car, according to a group of lawmakers who raised alarm about the issue last month. When it comes to security, the key difference between a Tesla and an XPeng is country of origin.
Some Chinese companies that are running self-driving tests in the United States “collect sensitive information about our citizens and their daily routines, the nation’s infrastructure, and connected technologies,” the bipartisan group wrote in a letter to those firms asking for more information, Reuters reported.
We’ve already seen communications equipment firms Huawei Technologies Co and ZTE Corp get banned from US networks.
Washington has also been successful in convincing allies to stop the supply of semiconductor technology lest China’s military-industrial complex use them to build tools that can be used against the United States.
These curbs all fall under the broad and vague banner of risks to national security.
The United States administration is not wrong. Numerous examples have come to light where these products have been used on US soil to challenge American interests.
Operatives have also been tracked gate-crashing military facilities more than 100 times in attempts to map layouts or gain access to information inside.
Beijing has also made clear its intention to develop its military and cyber strength, an effort that would be aided by having access to the best aerospace and chip technology.
It’s hard to imagine policy makers letting the risk posed by EVs percolate. Billions of dollars of Huawei and ZTE equipment had already been installed by the time Washington woke up and ordered them being replaced.
Chinese cars won’t be allowed to drive that far down the national security highway before being pulled over.
In the endless race to develop superior technology and protect secrets, China’s auto industry can expect to find itself navigating too close to America’s red line. — Bloomberg
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. The views expressed here are the writer’s own.