Automotive compliance in the US and Europe: moving the factory is only the beginning

Polestar, Volvo and Mercedes-Benz face different questions

Polestar provides the clearest example. Its first-half 2026 SEC filing records the announcement on 25 June that it had not received US authorization to sell vehicles from model year 2027 onward. Earlier model-year inventory may still be sold, after which new-vehicle sales will cease. The same filing lists US production of the Polestar 3 and imports from South Korea.[2]

Producing outside China can change origin and tariff treatment. It does not automatically resolve manufacturer control, covered technology or authorization requirements. For Polestar, the consequence reaches market strategy and distribution capacity, beyond the cost of an individual vehicle.

Volvo Cars secured a different outcome. On 26 May 2026, it disclosed a specific authorization under the US rule, allowing it to continue its US growth plans. The company explicitly described discussions covering governance, technology and data security, with decisions made case by case.[3]

The commercial lesson is to build governance and technical arrangements that can withstand regulatory review. Volvo has not disclosed every condition of its authorization. Another manufacturer cannot assume that copying its factory footprint or organizational structure will produce the same result.

Mercedes-Benz requires another assessment. Its shareholder disclosure for June 2026 lists BAIC at 9.98% and Li Shufu’s investment vehicle at 9.69%. Those percentages alone do not establish that the company is subject to a vehicle-sales prohibition.[4]

The US rule considers the ability to determine important corporate matters through voting rights, board representation, contracts and other arrangements. A minority investor’s substantive veto rights can matter. Ordinary minority ownership cannot be classified simply by the investor’s nationality. For Mercedes-Benz, governance, China-based development and covered systems supplied by Chinese-linked entities require separate examination. The parent, a Chinese joint venture and a technology subsidiary are also different legal entities.[5]

Where the restrictions operate

Tariffs, sales restrictions and lost tax benefits produce different outcomes. A battery can be legally usable without qualifying for a particular incentive. A manufacturer’s authorization also does not provide blanket clearance for all its suppliers.

Electrical and electronic architecture is where costs can compound

The US rule targets vehicle connectivity systems and covered automated-driving software. Connectivity includes telematics control units, cellular communications, Bluetooth, Wi-Fi and satellite links. Connected combustion-engine and plug-in hybrid vehicles can also fall within scope; propulsion type does not define the boundary.[1]

Checking the chip brand is insufficient. A US-branded processor may run communications software developed by a Chinese-linked entity. A European module supplier may integrate software from another jurisdiction. The relevant questions concern the covered function, who designed or supplied it and the status of those entities.

Consider an export model combining cockpit, connectivity and driving functions on a central computing platform. Replacing covered communications software may affect interfaces, boot authentication, update mechanisms and vehicle validation. Hardware savings from integration can be offset by regional software maintenance and repeated testing. This is an architectural decision with financial consequences.

There are boundaries to the software rules. The final regulation distinguishes qualifying application, middleware and system software from firmware; exclusion from the software definition does not necessarily exclude the associated hardware from later restrictions. Body control, battery management or driver assistance should not be labelled prohibited merely because they contain software. Classification depends on function and the applicable provisions.[5]

A practical design direction is a shared base platform with independently deliverable regional connectivity, data services and sensitive software. Versions must be traceable, interfaces replaceable, and signing and release authority explicit. Late separation risks simultaneous supplier changes, repeated validation and delayed approval.

Batteries: import access, manufacturing and incentives are separate decisions

The 2024 US Section 301 changes raised the additional tariff rate on Chinese electric vehicles to 100% and on EV lithium-ion batteries to 25%. Those are rates under that measure, not a universal statement of today’s total import charge. A quotation must account for other applicable measures and origin rules.[6]

Production incentives add another layer. IRS guidance issued in 2026 addresses prohibited foreign entities and material assistance for credits including Section 45X. US production alone does not guarantee eligibility; sourcing and contractual arrangements remain relevant.[7]

Ford’s Michigan battery project illustrates a distinct ownership structure: a Ford-owned and operated plant using CATL-licensed LFP technology. Chinese technology licensing and Chinese ownership of a plant are different arrangements. The licence, supply sources and tax provisions still require individual assessment.[8]

One premise has already changed for current sales planning. US new, used and qualified commercial clean-vehicle purchase credits are unavailable for vehicles acquired after 30 September 2025. Replacing a Chinese battery can no longer be treated as a general route to a $7,500 vehicle-purchase credit.[9]

Europe places more emphasis on lifecycle information. Relevant battery passports are required from 18 February 2027, while battery due-diligence obligations have been postponed to 18 August 2027. Carbon-footprint and other obligations have their own phased implementation and supporting rules.[10]

The operational bottleneck is upstream evidence. An automaker may have pack specifications without complete material provenance, calculation data or auditable records. Battery performance cannot substitute for that information. Contracts need to address data delivery, accuracy and traceability before sourcing decisions are locked in.

European hosting does not settle the data question

Vehicle data supports navigation, maintenance, insurance and development. The US Department of Justice Data Security Program, effective from 8 April 2025, prohibits or restricts specified transactions involving countries of concern or covered persons, government-related data and qualifying volumes of sensitive personal data. Precise location data can make vehicle-related arrangements relevant.[11]

EU privacy rules govern collection purposes, retention, access and international transfers. Hosting in Europe addresses infrastructure location, but a separate Chinese legal entity’s remote access to identifiable customer data still requires assessment.[12]

For example, fault diagnosis may require a Chinese development centre to examine logs containing account and location information. The operating model should establish which identifiers can be removed locally, which fields must be transferred, who approves access and when permission expires. Building those steps into the system preserves development efficiency and reduces improvised compliance work.

The EU Data Act adds a commercial dimension. Applicable from 12 September 2025, it strengthens users’ ability to access and share data generated by connected products. Data access for an authorized independent repairer or service provider can affect aftersales and data-service revenues. Business models cannot simply assume that all vehicle-generated data remains exclusively with the manufacturer.[13]

Europe remains accessible, with more conditions attached

The EU’s definitive 2024 countervailing duties on China-origin BEVs ranged from 7.8% to 35.3%. Origin and the applicable producer rate matter, including for Western brands manufacturing in China.[14]

In February 2026, Volkswagen Anhui’s CUPRA Tavascan obtained an approved price undertaking. Compliance with the approved minimum import price and other conditions provides exemption from the relevant countervailing duties. This demonstrates a workable commercial route, with constraints on pricing and execution.[15]

Product approval is another obligation. UN Regulations 155 and 156 address cybersecurity and software-update management. Under applicable European approval requirements, manufacturers need processes to identify and manage risks and software changes. These requirements assess products and continuing management capability rather than simply the nationality of shareholders.[16]

Business expansion brings further review. Acquisitions may face investment screening, while qualifying mergers and public procurement can trigger the EU Foreign Subsidies Regulation. Merger-notification thresholds include relevant EU turnover of at least €500 million and foreign financial contributions exceeding €50 million over the preceding three years. A reportable contribution is not automatically a subsidy found to distort competition.[17]

Supply-chain labour enforcement also reaches non-Chinese brands. In 2024, the US Senate Finance Committee reported that BMW had imported approximately 8,000 vehicles containing parts from JWD, a supplier on the relevant restricted list. A lower-tier component can expose the vehicle manufacturer to import risk. The EU forced-labour product prohibition applies from 14 December 2027.[18][19]

Technology access and investment have separate controls. US advanced-computing and semiconductor export rules can affect equipment, technology and suppliers used by Chinese development centres; they are not a universal prohibition on every automotive chip. Acquiring a US automotive-software or data business may also require CFIUS assessment, including certain non-controlling investments.[20][21]

Regional teams need authority over more than the sales specification

The most likely direction is greater regional differentiation in technology and operating arrangements. US projects must establish manufacturer and covered-technology eligibility. EU programmes must maintain trade, certification, data and battery-information capabilities throughout commercial operation.

At programme approval, management should identify the functions requiring regional independence, the suppliers able to provide traceability, the authority over updates and data access, and the sales volume needed to cover separate maintenance. Shared platforms retain value, but regional compliance budgets should be visible rather than absorbed into late engineering changes.

For lower-volume brands, maintaining a US-specific architecture and regulatory arrangement can be difficult to amortize. Larger manufacturers have more scope to preserve scale through early modularity and regional operational control. Suppliers offering traceable software, transparent sourcing and long-term support should gain bargaining power relative to vendors competing only on hardware price.

The next phase of international competition will reward companies able to keep products reliably in market over time. Polestar faces a narrowing sales channel; Volvo continues under a specific authorization; Mercedes-Benz requires distinct governance and technology assessments. These differences make brand nationality and factory location inadequate planning shortcuts. Compliance belongs in architecture, sourcing and investment-return decisions from the outset.