Compliance Advisory: Automotive Software Supply Chains Under Scrutiny. What the Chinese Code Shift Means
A recent Wall Street Journal article highlights an urgent shift across the automotive sector: automakers are rapidly moving to replace software developed in China as new U.S. national-security regulations reshape how connected vehicles are built and sold. The regulatory push reflects a broader trend: governments are increasingly treating software provenance, data access, and supply-chain visibility as potential national security issues rather than purely technical concerns.
Why This Matters
Connected vehicles now function more like rolling data platforms than traditional mechanical products, collecting location data, telemetry, and behavioral information through connectivity systems and autonomous features. Because these systems rely on complex global software ecosystems, regulators are focusing on whether foreign-developed code could introduce risks related to data access or remote system manipulation. As a result, compliance expectations are expanding beyond cybersecurity hygiene into geopolitical and supply-chain governance.
Evolving Compliance Requirements
Under the U.S. Commerce Department’s connected-vehicle rule, automakers must be able to demonstrate that certain connectivity or autonomous-driving software does not originate from entities linked to countries of concern. Software-related prohibitions begin with model year 2027 vehicles, with additional hardware restrictions following later in the decade. These requirements also introduce obligations such as annual Declarations of Conformity, long-term recordkeeping, and enhanced supply-chain due diligence, signaling a major shift toward continuous compliance rather than one-time certification.
The challenge for many organizations lies in tracing software lineage across layered vendors and embedded systems. Modern automotive platforms often incorporate code from dozens of suppliers, making provenance verification difficult and increasing the risk of unintentional non-compliance. This complexity is driving automakers, and increasingly other connected-device manufacturers, to reassess vendor relationships, development practices, and governance models.
Cybersecurity and Governance Implications
From a cybersecurity and governance perspective, this regulatory shift reinforces the need for more mature third-party risk management and enterprise risk oversight. Organizations can no longer rely solely on traditional vendor questionnaires or contractual assurances. Regulators are signaling expectations for deeper technical validation of supplier components, including security reviews of firmware, embedded systems, and vendor hardware and software stacks. These assessments help organizations determine whether technologies meet compliance requirements or whether formal exception or authorization pathways may be required.
Software bills of materials, supplier risk scoring, and continuous monitoring practices are becoming foundational controls rather than optional enhancements. Enterprise risk management functions play a critical role by translating technical review findings into business level risk decisions, supporting defensible documentation for regulators and enabling organizations to justify remediation plans, compensating controls, or authorization requests when restricted technologies cannot be immediately replaced.
What Organizations Should Consider Now
This development is an early signal of broader regulatory direction. Strengthening third-party risk management programs should include deeper technical due diligence of vendor components, such as firmware analysis, architecture reviews, and validation of connectivity or data handling capabilities within hardware and software stacks. These reviews not only support proactive compliance but can also provide the technical evidence needed when pursuing regulatory exceptions, attestations, or authorization applications.
Organizations should evaluate whether their enterprise risk management processes adequately connect technical security reviews to governance decisions. Establishing workflows that tie supplier assessments, firmware testing, and penetration testing outcomes into risk registers and compliance documentation can help leadership respond faster as regulatory scrutiny increases across connected technologies.
How to Stay Compliant
Impacted companies are beginning with security reviews of their firmware and vendor hardware and software stacks to evaluate next steps. Whether they are looking to prove their compliance with the new order or seeking an exception or authorization application, the first step is to gain a full understanding of the practical impact this rule may have.
If your team is evaluating how these emerging regulations may impact your environment, we welcome the opportunity to support your planning and implementation efforts. Give us a call at (833) 292-1609 or email us at [email protected].
