Should you buy a Chinese EV? The U.S. says NO.

Should you buy a Chinese EV? The U.S. says NO.

Australia needs to urgently ditch the luxury car tax so that Chinese electric vehicles (EVs) aren’t the only cheap option. According to U.S. security experts, Chinese EVs are a danger to national security.

In a decisive move with significant implications for the United States (U.S.) automotive and technology sectors, the Biden Administration this week unveiled plans to prohibit the use of Chinese-developed software in internet-connected vehicles.

Unlike tariffs, which increase the purchase price of a Chinese vehicle, the latest move effectively bans Chinese vehicles from entering the U.S.

We might reasonably ask why the Australian Government thinks Chinese EVs are innocuous and safe.

The answer, of course, is that there’s more value today for the Australian Government to ensure its voters can access cheaper products; ‘Give them cheap goods, and they’ll be happy and re-elect us’ is their thinking.

But if the bureaucrats in Canberra get rid of the luxury car tax, local consumers wouldn’t be forced to consider Chinese EVs as the only cheap option. European cars would be cheaper and less risky to national security than a giant fleet of Chinese road-going ‘spyware’.

The U.S. takes national security much more seriously than the Australian Government and prioritises it over cheaper goods.

Citing national security concerns, Biden’s initiative extends the rationale behind earlier bans on Huawei telecommunications equipment and seeks to prevent potential espionage by Chinese intelligence agencies and avert cyber threats to critical infrastructure, including the U.S. electric grid.

The U.S. National Security Advisor, Jake Sullivan, highlighted the risks of Chinese EVs stating, “These technologies gather vast amounts of data on drivers and are constantly linked to personal devices, other vehicles, critical infrastructure, and manufacturers. Components developed in the People’s Republic of China introduce new vulnerabilities.”

The Biden Administration’s actions are partly driven by worries over cyber campaigns like “Volt Typhoon,” which U.S. intelligence and the Federal Bureau of Investigation (FBI) allege is a Chinese effort to embed malicious code within American power systems and other essential services. According to The New York Times, such code could be activated during crises – such as a conflict over Taiwan – to disrupt military operations and response capabilities.

Importantly, the bipartisan agreement on countering perceived Chinese technological threats suggests that such policies will likely persist, irrespective of future political leadership.

And be careful if you own a Chinese-made DJI drone. In the U.S., Peter Harrell, former Senior Director for International Economics at the National Security Council, was quoted as suggesting Chinese-made drones could be the next focus due to analogous surveillance and security risks.

For investors, this development signals a deepening technological decoupling between the U.S. and China, with far-reaching consequences for supply chains, market dynamics, and geopolitical risk assessments. Retaliation is also likely, so companies with automotive technology, cybersecurity, and logistics businesses will be re-evaluating their strategic positions.

The U.S. ban will affect all wheeled vehicles operating on public roads – encompassing cars, trucks, and buses – with the prohibition on Chinese or Russian-origin software commencing in the model year 2027. Restrictions on hardware integrated into vehicle connectivity systems will follow, starting in model year 2030.

With the U.S. escalating its prioritisation of cybersecurity in national, trade and investment policy, one cannot help but ask if the Australian Government is asleep at the wheel and allowing thousands of ‘Trojan horses’ through the front gates on a daily basis.

And keep in mind evolving regulations have the power to reshape global markets and investment outcomes.

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.