On September 23, the Biden Administration announced a new set of proposals that would essentially ban software of Chinese origin from being used in "connected cars" roaming the United States highways and byways.
While controversial, Biden Administration national security adviser Jake Sullivan and Commerce Secretary Gina Raimondo defended that the move is justified on national security grounds, as it prevents bad actors from listening in on everyday Americans or accessing critical infrastructure.
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“Cars today have cameras, microphones, GPS tracking, and other technologies connected to the internet. It doesn’t take much imagination to understand how a foreign adversary with access to this information could pose a serious risk to both our national security and the privacy of U.S. citizens,” Raimondo told reporters back in September.
“Many of these technologies collect large volumes of information on drivers,” Sullivan added. "They also connect constantly with personal devices, with other cars, with U.S. critical infrastructure, and with the original manufacturers of vehicles and components."
But while very few actual Chinese cars roam American streets, Raimondo defended that the move is a “proactive” measure that is best for protecting Americans "and trying to give every American peace of mind."
These rules seem to be targeted at Chinese Tesla rivals like Xiaomi and BYD (BYDDY) , an embattled Tesla rival with roots in a well-known Swedish auto brand, may be caught in the crossfire.
Polestar has a sharp rebuttal to Biden's anti-China proposal
In publicly available comments to the Commerce Department, Geely-owned (GELYF) Polestar (PSNY) defends that the proposed rule could "effectively prohibit" the brand from selling its EVs in the United States, even models like the Polestar 3, which is built in South Carolina.
Further, they argue that the ruling could result in a ripple effect that will be felt across the industry.
"The Proposed Rule as presently drafted would create impactful disruptions to the already significantly challenged automotive industry," Polestar wrote in its 7-page comment document. "Several aspects of the Proposed Rule may stifle technological innovation, disrupt supply chain efficiencies, and require numerous regulatory interventions to provide clarity."
Though officials like Raimondo and Sullivan have argued that the software installed in "connected vehicles" originating from the People's Republic is dangerous to American safety, the automaker argues that the rules should be more specific.
In one section of its comment document, the automaker argues that while it does make one of its vehicles in China, much of its operations are located outside of the People's Republic and are headed by people of various nationalities.
"Polestar’s headquarters and executive management are in Sweden, and seven of its ten directors hail from Europe and the United States, with the Board Chair being a German citizen," the automaker said.
"The Chief Executive Officer of Polestar is a German citizen, and the Chief Financial Officer is a French citizen. Polestar is proud to manufacture Polestar 3 SUVs for North America and European markets at Volvo Cars’ plant in South Carolina and will begin production of its Polestar 4 model in South Korea in 2025."
Additionally, Polestar pointed out that just 280 of its 2,800 employees work in China, but nonetheless, is still largely "American."
"Given these facts, BIS should consider whether a rule that effectively shuts down the operations of a lawfully organized U.S. company with substantial U.S. investments and so many personnel and key decision-making units in friendly nations and the United States is appropriately tailored to address the stated national security concerns."
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Polestar's current struggles make this latest hurdle that much tougher
Their grievances come at a time of transformation for the EV manufacturer. Recently, Polestar's newly appointed CEO, Michael Lohscheller, revealed that the company is planning to pivot away from its direct sales model.
“A key to our future success will be the development of our commercial capabilities: going from showing to actively selling cars,” Lohscheller said. "Adopting a more active sales model is already supporting our ambitions, as the first markets to implement it are showing solid order intake."
Polestar was facing a fiscal crisis. On May 17, Polestar acknowledged that, as a consequence of not filing an Annual Report for its 2023 fiscal year and first-quarter 2024 financial report, it's at risk of being delisted from the NASDAQ.
On September 17, the company announced that it was in compliance with NASDAQ listing rules.
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Polestar isn't the only automaker complaining to the Commerce Department.
Polestar isn't the only automaker to criticize and point out holes in certain portions of the proposed ruling.
In its comment, Detroit mainstay Ford noted that in its written state, "certain language in the proposed rule could be interpreted in an overly broad and unnecessarily expansive manner."
"More specifically, the proposed rule could potentially be read to prohibit the sale of completed connected vehicles by U.S. automakers if those vehicles were assembled within the jurisdiction of a foreign adversary such as by a foreign affiliate of a domestic U.S. automaker, regardless of the lack of involvement by a foreign adversary in the design or development of the vehicle’s covered components," its comment read.
Additionally, in its own filing, the Mexican government raised that the proposal could have a "substantial impact on Mexico’s automotive industry," as automakers from BMW to General Motors take advantage of USMCA rules to make their cars in Mexico due to lower labor and production costs.
"Economically, it poses potential trade barriers, disruptions to supply chains, increased production costs, and a possible risk of reduced direct and indirect employment in the sector within the country, among other effects."
Polestar, which is listed on the NASDAQ as PSNY, is more than 6% today, trading at $1.18 per share at the time of writing.
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