U.S. bars Polestar from selling new cars under Chinese software rule

The Commerce Department has denied Swedish electric-vehicle maker Polestar authorization to sell new cars in the United States starting with the 2027 model year, the company said Thursday, making it the first automaker forced out of the U.S. market under a Biden-era rule restricting vehicles with Chinese software and hardware over national-security concerns.

Polestar, controlled by Chinese auto giant Zhejiang Geely Holding Group, had sought a special authorization from the Commerce Department to continue selling vehicles under a process laid out in the “connected vehicle” rule. The government denied the request, the company said. Polestar will continue selling its remaining U.S. inventory and will maintain access to service centers for repairs.

The “connected vehicle” rule, developed during the Biden administration, aimed to restrict the import or sale of vehicles with hardware and software linked to China, citing national-security concerns over the potential for cameras and GPS tracking in cars to be exploited by foreign adversaries. Carmakers had until March of this year to attest to the U.S. government that their products do not contain code written in China or by a Chinese company, or otherwise petition for authorization to continue sales of vehicles beginning with model year 2027.

Volvo, also majority-owned by Geely, received authorization in May to continue operating in the U.S. At the time, Volvo noted that the process to obtain an authorization is carried out on a “case-by-case basis” and the approval followed discussions between U.S. officials and the automaker regarding Volvo’s technology and data security.

Polestar had said it anticipated cars in the U.S. would be compliant with the Commerce Department’s rule. Last year, after the rule went into effect, Polestar Chief Executive Michael Lohscheller told analysts that the U.S. was an important growth market and that discussions were continuing to find solutions for model year 2027 vehicles. “We are very focused on making sure we comply with this new legislation,” he said on a call.

Polestar, originally Volvo’s performance and motor-sports arm, became a stand-alone brand in 2017 and spun out as a separate company in 2021, going public through a special-purpose acquisition company. The brand launched with the limited-edition Polestar 1, a hybrid coupe with a $156,000 price tag, and the Polestar 2, a sporty electric sedan made in China that was an early rival to the Tesla Model 3.

But the brand struggled with a small lineup, especially in the U.S., where buyers primarily gravitate to SUVs and trucks. The brand’s stock currently trades at $19.22 a share, down 96% from its all-time closing high of $459.90 in November 2021. Polestar’s Chinese connections also proved challenging. Stiff tariffs imposed by both the Biden and Trump administrations on Chinese cars led the Polestar 2 to be phased out of the U.S. Today, the brand sells the Polestar 3 SUV, built in South Carolina at a Volvo factory, and the Polestar 4 SUV, imported from South Korea.

Polestar said it will now focus on strengthening its business in Europe, which represents about 80% of its total global sales. “The automotive industry is entering a new phase, based on regional dynamics,” Lohscheller said Wednesday.

The Commerce Department did not immediately respond to a request for comment.