The U.S. seems to be ceding technological lead to China

The U.S. seems to be ceding technological lead in a critical sector to China following the country’s decision to cut funding to programs boosting EV sector sales. 

China and the U.S. are taking completely different approaches to their electric vehicle industries. Despite the Trump administration’s tech-forward stance, stakeholders are claiming that they are disrupting the progress of the industry

Beijing is pushing driver assistance technology

China’s rapid development in assisted-driving and electric vehicle (EV) technology has once again brought the country into the spotlight.

Regulators upped the ante after an incident involving a Xiaomi SU7 sedan operating under an assisted-driving system claimed three lives in March. The focus is now on the limits of Level 2 systems, which require constant driver supervision despite being able to handle steering, acceleration, and braking.

Xiaomi has continued to cooperate with the investigation, but Chinese regulators have responded by tightening supervision. They are now drafting new safety rules that include hardware and software standards for monitoring driver awareness and readiness to take over control.

Officials have tapped automakers like Dongfeng and tech companies like Huawei to shape these regulations, with a public comment period closing on July 5. This collaborative approach aims to enable the rollout of Level 3 vehicles with systems that allow drivers to take their eyes off the road under limited conditions as early as 2026.

Earlier this year, the state-owned automaker Changan was chosen to begin Level 3 validation testing. That plan was paused following the Xiaomi crash but is expected to resume soon. Several companies, including Geely’s luxury brand Zeekr and Huawei, are gearing up to bring Level 3 systems to market and are simply awaiting regulatory approval.

Huawei has already completed over 600 million kilometers of simulated testing and is reportedly ready to launch highway-capable Level 3 tech.

Industry analysts have said that China’s proactive stance in developing policies alongside technology gives its automakers a competitive edge.

In contrast, in the U.S., companies like Tesla and Waymo face delays due to the absence of a federal framework for self-driving cars.

Currently, over 60% of new vehicles sold in China feature Level 2 capabilities. Brands like BYD are pushing these features at scale, even offering them at no extra cost under names like “God’s Eye.”

At the April Shanghai Auto Show, global brands like Mercedes-Benz and Volkswagen showcased advanced driver-assist systems but stopped short of promising Level 3 capabilities due to high costs and regulatory uncertainty.

Mercedes-Benz CTO Markus Schaefer noted that despite cheaper chips and computing systems, achieving the safety standards required for Level 3 remains expensive and elusive. “It’s a moving target,” he said.

U.S. retreats from EV incentives

Under a sweeping tax and budget bill passed by Congress, the popular $7,500 tax credit for new EV purchases along with the $4,000 used EV credit, will expire on September 30, 2025.

The Electrification Coalition, a prominent EV advocacy group, warned that this legislation effectively surrenders America’s role in the global transition to electric transportation.

“As EVs secure a growing share of the global automotive market, it is obvious that the future of transportation is electric; this bill forfeits America’s role in that future to China,” the group stated on Thursday.

Originally introduced in 2008 and expanded in 2022, the tax credit helped push EV sales by easing the cost burden for consumers. Analysts are arguing that ending it now could deliver a sharp blow to momentum in the U.S. EV market.

According to Barclays auto analyst Dan Levy, the expiration date is likely to spark a temporary buying surge with consumers rushing to purchase EVs before the credit ends. He also warned that there would be a steep drop in demand thereafter.

“We believe the bill reiterates the slowdown ahead for EV penetration in the U.S., with both the ‘carrot’ (tax credits) and the ‘stick’ (emissions regulations) softened,” Levy wrote in a research note.

The U.S. government has historically used a combination of financial incentives and regulatory penalties to promote cleaner transportation. But the final bill also eliminates fines for automakers failing to meet Corporate Average Fuel Economy (CAFE) standards which could encourage the continued production of gas-powered vehicles.

Stellantis, the parent company of Chrysler, paid nearly $600 million in penalties for fuel economy violations from 2016 through 2020. General Motors paid $128.2 million in fines over two years.

A Harvard University study from March projected that ending the EV tax credits would reduce EV market penetration in the U.S. by 6% by 2030 and save the government $169B over a decade. But those savings could come at the expense of technological leadership.

Meanwhile, China continues to subsidize EV manufacturing, software development, and AI integration for its vehicles.

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