Chinese companies are aggressively developing autonomous vehicles. In August, the country announced that it had issued 16,000 test licenses for driverless cars and opened around 20,000 miles of roads nationwide for autonomous vehicle testing. One of the biggest players is Chinese technology giant Baidu. The company says it has more than 500 robo taxis in Wuhan, operating on its ride-hailing platform Apollo Go. CNBC's China bureau chief Eunice Yoon took a ride in one back in May. On China's notoriously chaotic roads, the robo taxi drove up a ramp, made a U-turn, and negotiated its way around bikers riding tandem and a timid driver. I tested out a trip from the southern part of Beijing to the new Daxing Airport, and I took robotaxi rides from Baidu, Weride, and Pony, and basically half the cost of

the rides were subsidized. But China-linked autonomous vehicle companies have also quietly been testing their technology on US streets. China had carte blanche. Chinese companies came in here into California, which they feel is sort of a second home, with complete freedom to develop, engineer, test their cars on California roads for years. And then about a couple of years ago, the Department of Commerce discovered this was going on and said, wait a second, this could be a national security risk. So they started to investigate, ask questions. In September, the Biden administration proposed a ban on Chinese and Russian connected vehicles. Cars aren't steel on wheels anymore. It's like a computer on wheels. There's a huge amount of data. Just think about it. Where you go. Where your kids go. Where your house is. Where your doctors are. All of that data being sent back to the PRC or the

Chinese military. It's just a risk that we decided we couldn't handle. CNBC wanted to learn more about what these companies were doing on California's roads and what impact the increased scrutiny around Chinese connected vehicles could mean for the industry in the future. Chinese autonomous vehicle companies have had a presence in the United States for nearly a decade. The very first time I came upon the Chinese autonomous vehicle industry was right here in California. I was in Silicon Valley invited by Baidu, which is the Google of China, to attend a major event to launch the opening of a new brand called Baidu Apollo. And they would be doing testing, extensive testing in California, so that in the future they would be able to deploy Baidu vehicles both in the United States and in China. This was back in 2016. The push into the US was part of a broader Chinese plan to make the country a world leader in critical

technologies. They were part of a larger initiative. That was Xi Jinping, China's leader, and his top lieutenants, saying, Hey, by 2025, China wants to be the global leader in next-generation technologies. That includes electric vehicles, batteries, AI, chips, and autonomous vehicles. Well, when entrepreneurs on the ground in China got word about this blueprint, they started to race around and say, We'll be at the forefront of that. And Baidu was the leader. But there were other companies that quickly followed. Since, several China-linked companies have established research labs in the US and have been granted licenses by California's Department of Motor Vehicles to test their autonomous vehicle technology. China-linked firms Didi, WeRide, Pony.ai, Baidu, and AutoX all have offices in Northern California, right alongside many U.S. autonomous car outfits. Collectively, these five companies have logged over

1.6 million test miles on California's roads between 2017 and 2023, gathering valuable data to train their autonomous vehicle algorithms. Out of these five companies, Didi is the only one that no longer has an active AV testing permit, according to the DMV's website. But while 1.6 million miles may sound like a lot, experts say it's nowhere near the amount of testing they would expect from a company with ambitions to bring a product to market. China has several companies testing in this country, but they're not really making the progress that you would expect. We do know that there was one company that did try to commercialize, Tusimple, a self-driving trucking company, but after they had a very bad accident, they were no longer in operation. Pony.ai also had plans to commercialize a robotaxi service in California in 2022, but that goal was

never realized after the company's driverless testing permit was suspended by California's DMV in 2021 following an accident in which one of the company's AVs ran into a traffic sign. Pony.ai does still have a permit to test its autonomous vehicle technology in California, with a safety driver present. In 2018, Autox also operated a grocery delivery pilot program in San Jose using its autonomous vehicles, but nothing has been mentioned on the company's website about the service since. What we see out of the Chinese self-driving cars are extremely spotty testing, so they don't have a continuous testing profile that we would expect out of a more advanced company like Waymo, like Zoox. They have theoretically been here to do test and development of self-driving cars, but the efforts that we see from them are half-hearted at best, and certainly not keeping up with their near

peers. DMV data shows that the collective amount of test miles logged by some of the most prolific China-linked AV companies operating in California was significantly less than the miles logged by US competitors Cruise and Waymo individually in the years between 2021 and 2023. The same data shows that between 2021 and 2023, there was an 84% decrease in the number of test miles driven by these same China-linked outfits. At its peak, there were more than 14 Chinese companies doing testing in California, Nevada, and Utah. Today, 2024, I see very little evidence or intention among Chinese autonomous vehicle makers to launch products in the United States. So if competing in the US domestic market is not the goal, why were these companies here? Experts say there may have been several reasons. The Chinese were here, essentially because they recognize that Silicon Valley was the cradle of

autonomous vehicle technology. So where do you go? You go to where the talent is. So they hired a lot of people who had previously been working for Apple or Tesla or Waymo or Cruise and said, let's get the best talent in the world. We have funding and we want to build a world-class company, take that knowledge, bring it back to China, apply it to our massive home market, and we're off and running. The regulatory framework around autonomous vehicle testing was also more established in California than in China during the early days of the technology. For example, California approved the state's first rules for the testing of self-driving cars on public roads back in 2014. Meanwhile, companies in China were not granted licenses to trial their AV technology for a few more years. But that regulatory landscape has been changing rather quickly. Where competition between the United States and China really rests is in the regulatory arena.

Autox, Weride, Pony.ai, Baidu, and Baidu's joint venture with Geely called Jiyue all enjoy tremendous support at the provincial and city levels from regulators who say we see the potential of autonomous vehicle services. We want to do everything in our power to accelerate that commercialization. Now, that stands in stark contrast to what we have here in the United States, where a regulator's first concern is safety. We actually have better technology here in the United States, but the regulators are going very carefully before approving licenses for operation. The question of why these companies were operating in the US troubled Missy Cummings, who, as a former military officer and senior safety adviser to the National Highway Traffic Safety Administration, was aware of the value of the type of data that could be collected by autonomous vehicles. As people have been told over and over again, data is

the new oil. It became pretty clear to me that these vehicles are very much surveillance machines. They have multiple cameras looking at everything from many different angles, and they can do the same pattern every day over and over and over again under the guise of testing, but also gathering really critical information that may not seem confidential, but certainly is sensitive about patterns of life, about vehicles that go in and out of certain installations, about how we actually do supply chains. A car drives around, it will capture images of people's faces. It will capture buildings, it will capture movements of other vehicles, license plates, all kinds of information that could be used as a kind of leverage in the future. Probably the single biggest risk, of course, is that those vehicles could be remotely crippled or, you know, made to suddenly take off into an intersection randomly, spontaneously, at a moment's notice and no one

would quite know what happened or why. I do think people need to recognize that it's not any one piece of information that any one drive-by of a car is probably going to be useful in some kind of cyber attack or malicious use of this data. It's actually learning about patterns of life through repetition in data collection, because you don't know that an attack on a port, for example, wasn't somehow tied back to the data that was gathered in these systems. Representative Marc Veasey of Texas is also concerned. Last year, he and three other representatives wrote a letter to the Biden administration warning of the dangers that Chinese autonomous vehicles operating in the U.S. pose in terms of national security and competitiveness, and urging the government to act. For the companies that are operating here in the U.S. and saying, We're just collecting this data to be

able to improve our vehicles. That just again, that just doesn't make any sense at all. We know that the Chinese send companies to the U.S. to spy, and that any company that is in business in China, that they're essentially in business with the Chinese Communist Party, and they probably want to collect that data and use it in order to be able to have certain levels of advantages and innovation when it comes to shortcomings in their own products. Still, Dunne points out that what these companies were doing was in no way illegal. When it comes to where that data that was collected by Chinese companies in California went. Nobody's talking. There's no smoking gun and we'll likely never know. But realistically, their whole purpose here was to accumulate experience and learning and hire talent and create coding. And naturally, that knowledge would have transferred back to headquarters. And at the time, there were not constraints to that.

There weren't any legal prohibitions. Why not send it back to China? Of course, we're going to do that. In an email to CNBC, California's DMV said that it didn't treat Chinese companies any differently than any other companies when it came to granting them licenses to test their autonomous vehicles. When a company from any country wants to get a permit in the state of California, they just fill out some paperwork, pay a tiny bit of money, and then they're allowed to drive. So, there's no restrictions, and there's no post-supervision, meaning nobody's checking to see what anybody is doing with their data. The Biden administration's new proposed bill to ban connected cars from China and Russia is meant to address some of these concerns. The bill would cover any systems and components that connect vehicles to the outside world, including Bluetooth, cellular, satellite, Wi-Fi modules, and automated

driving systems like those used by autonomous vehicles. The prohibition on software would take effect on cars model year 2027, and the prohibitions on hardware would take effect on cars of model year 2030. The proposed bill comes on top of the sky-high tariffs on Chinese vehicles that the Biden administration introduced earlier this year. Chinese companies were able to find workarounds by exporting some components to a place like Korea or Morocco, which have free trade agreements with the United States, and then shipping Chinese cars from those third countries into the US, circumventing the tariffs. So how do you plug that hole? Well, you know what? I don't care where you assemble it in our friendly country or from China. We're not looking at origin of production. We're looking at the components, the hardware, the software. And we basically are saying as the United States, we want to shut the door, at least for

the time being, on anything that looks like, walks like, runs like a Chinese vehicle. Cummings says that while the proposed ban is a good start, she would like more to be done to protect the privacy of the public. I wish the Biden administration would go one step further and make sure companies cannot sell that data, either. It's very tempting to sell the significant amount of video data being collected every day by cars with driving assist systems, so I do think that that's actually a more near-term threat is the video that's being collected by all manufacturers, including American manufacturers. Veasey agrees that guardrails are needed, and says we should take note of how China has treated American companies wishing to test in their country. If it wasn't that big of a deal, they would be letting us collect this same data on Chinese roads where they're not allowing any testing to take place on

their roads. But not everyone agrees with the proposed ban. Lei Xing has been covering the Chinese auto market for over 20 years and worries that the ban may stifle the progress of autonomous vehicle technology. The amount of data that these sensors collect is pretty significant, but to me, the threat is certainly politicized because unless you have these sensors that collect information, we couldn't have the progress and the utilization of AI for these autonomous driving to go forward. Still, China has been much stricter than the U.S. about foreign companies operating on its roads. The country heavily regulates the use of high-resolution maps and data, which are necessary for driverless systems due to national security concerns. Currently, no foreign firm is qualified for mapping in China. It's a hurdle that Tesla, which sells and manufactures some of its electric vehicles in China, has been dealing with.

In April, Tesla CEO Elon Musk reportedly scored a deal with Chinese tech giant Baidu that would give Tesla access to Baidu's high-resolution mapping and navigation technology for Tesla's Full Self-Driving suite of driver assistance features. Do we see Waymo there? No. Do we see Cruise there? No. Do we see Zoox there? No. They've looked at it, looked again, said we can't get the permits to get going. That's their conclusion right now, and for the time being and for the foreseeable future. CNBC reached out to Didi, Baidu, Autox, Pony.ai, and WeRide to ask them what they thought of the proposed ban and how it might affect their operations. Baidu and Pony.ai declined to comment, while Didi, Autox, and WeRide did not respond to CNBC's request. Still, as tensions between China and the US rise, Dunne

says that the US could be in a better position than China. Waymo, Cruise, Zoox, the leaders here in the United States, their single biggest impediment to growth is getting the technology right. So it's safe enough that regulators approve so they can expand. So there's massive market opportunity here in the United States. They don't need to go to China, nor do they need to source their technologies from China. They can do it here on their own. Many Chinese autonomous vehicle companies do rely on chips and technologies from the likes of Nvidia and Qualcomm. And should those sources be cut off, that would definitely hamper China's ability to compete with the leaders here in the United States. China has been hedging against this. The country has begun producing its own semiconductors after the US banned the export of the country's most advanced chips to China in 2022.

Many questions remain about what the proposed ban on Chinese connected vehicles will mean for the Chinese companies already operating in the US, and the implications it will have on the broader autonomous vehicle market. In an emailed statement to CNBC, a California DMV spokesperson said that the agency is aware of the proposed ban on Chinese connected vehicles and would update its regulations accordingly for the affected companies testing in the state, should the law be passed. They'd have to do a complete rethink of their business and say, well, if we're an American company incorporated here as a subsidiary of a Chinese company, are we still considered Chinese? That's their hope that they qualify as an American. But I think, where are we going with this whole thing? It looks like the world is bifurcating into two camps, the China Plus camp and the America slash Western camp. And when it comes to future technologies, whether it's

chips or autonomous vehicles or electric vehicles, the trend seems to be that each of those two power bases would like to design, engineer, develop its own systems so that it's independently capable and not reliant or vulnerable to the other side. Signs of Chinese autonomous vehicle players pulling back from the US are already apparent. Global ride-hailing giant Didi, now saying it will delist from the New York Stock Exchange less than six months after going public in August. WeRide also announced that it would delay a planned US IPO. It's a week-to-week thing with regards to the fate of Chinese companies trying to IPO in New York. Ten years ago, it was automatic. Today, it's really up in the air in terms of approvals on both sides of the Pacific. Complicating matters further is the question of what will happen to the relationship between American and Chinese companies who already partner on autonomous

vehicle technology. Take Waymo, for example, which partnered with Geely's Zeekr, a Chinese EV manufacturer, for its sixth generation robotaxi. More recently, Waymo also announced that it would partner with Korean automaker Hyundai for some of its robotaxis, leading some to wonder if Waymo was hedging its bets. In an emailed statement to CNBC, a Waymo spokesperson said the company's partnership with Zeekr remains unchanged. The ban could also impact consumers, since some vehicles sold in the U.S. are assembled in China. The U.S. Department of Commerce said that US automakers may be less competitive in the global market because of the relatively higher prices of their vehicles. It estimated that approximately 1,700 to 26,000 fewer vehicles would be sold annually in the US because of the rule. It's in the best interest of the multinational companies

from their perspective, to be able to get to source from the cheapest companies, to have the relationships. So, I get that, but it is not in our national interest that these companies be allowed to share data with companies that definitely have a direct link right back to the Chinese government. Veasey says perhaps there's a middle ground. I'm not saying that we shouldn't team up with China. I'm saying that we have to have very strict rules on how we deal with the Chinese Communist Party on each and every thing that we do, but particularly something like autonomous vehicles, because, again, they've just proved themselves over and over, to not be honest brokers when it comes to anything around the issue of trade or commercial products. At least for the near future, Dunne says we should expect autonomous car players to focus on their home markets. Look for the United States companies here, American

autonomous vehicle to really focus on the US. After all, it's the most lucrative market in the world, and by the looks of it, they'll enjoy some protection from Chinese competition for years to come, too. On the Chinese side, similar story. They're going to grow and prosper at home, and then look for the Chinese to begin to extend their AV applications to friendly countries in Southeast Asia, maybe South America, possibly the Middle East. There's a recognition. Oh, we had a nice run in the United States. We learned a lot. But from here forward, maybe we have enough that we can build our own innovation inside China.

Why China Is Testing Its Autonomous Cars On U.S. Roads

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