The U.S. government is doubling down on its mission to curb China’s attempts to spy on Americans. In January 2024, U.S. Secretary of Commerce Gina Raimondo raised concerns about Chinese electric vehicles (EVs) having the ability to harvest American data. Now, President Joe Biden and his administration are launching an investigation into the national security risk that Chinese EVs may pose.
Most of China’s EV producers don’t currently sell in the U.S. due to high import tariffs. But if the investigation turns up evidence that the alleged risks are real, it would likely make it even harder for these companies to make headway in the booming U.S. market. Chinese EV stocks run the risk of being compromised if the investigation uncovers any illicit activity.
For investors, this is the time to approach companies in China’s EV sector with caution. As of now, it’s unclear what the investigation will find. But news of this development doesn’t reflect positively on a country whose government already has an espionage track record, particularly when it comes to the U.S.
What This Means for Chinese EV Stocks
News of the investigation doesn’t seem to be impacting Chinese EV stocks too much so far. On the contrary, shares are rising for the majority of China’s EV producers today. Leading automaker BYD (OTCMKTS:BYDDY) is still in the green despite falling after an early morning rally. Nio (NYSE:NIO) is also up 4% so far today while XPeng (NYSE:XPEV) is surging over 8% on news that it’s expanding its EV partnership with Volkswagen (OTCMKTS:VWAGY). Finally, Li Auto (NASDAQ:LI) is up by under 1% amid significant volatility.
Despite this reaction from the market, it’s important for investors to see the big picture here. Investor confidence in Chinese EV stocks is likely about to tumble as regulators carry out their probe. The United States is levying severe accusations against China and these companies, and it isn’t the first to do so. In August 2023, U.K. officials issued similar warnings regarding EV imports from China.
While President Biden has demonstrated a commitment to spurring domestic EV production, he has also made it clear that he’s focused on protecting both U.S. data and U.S. manufacturing interests. If Chinese EVs are revealed to have any spying capabilities, this White House will likely take severe action.
The White House recently addressed the accusations against Chinese EVs in a statement:
“Most cars these days are ‘connected’ – they are like smart phones on wheels. These cars are connected to our phones, to navigation systems, to critical infrastructure, and to the companies that made them. Connected vehicles from China could collect sensitive data about our citizens and our infrastructure and send this data back to the People’s Republic of China. These vehicles could be remotely accessed or disabled.”
The Road Ahead
In one month, these allegations have gone from being just a talking point to a priority for the President of the United States. The probe also comes just after Biden signed an executive order aimed at protecting Americans’ “sensitive personal data” from “countries of concern,” including China, Russia and North Korea.
This hyper focus on data protection makes one thing clear: The probe into Chinese EVs will be taken seriously. And if the government finds significant risks, the U.S. may decide to impose huge restrictions on Chinese EVs. That type of uncertainty doesn’t bode well for Chinese EV stocks, even as companies like BYD focus on expanding outside the U.S. market.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
