- [Narrator] Cars today can be controlled from an app.
(speaking in foreign language)
- [Narrator] Their AI assistant
can help you find the best routes.
Some even have cameras
that detect whether you're too tired to drive.
Those high-tech features also mean cars
are gathering a lot of data about us.
Vehicles can collect up to several terabytes per hour,
which can be used to train algorithms
and help innovation.
In China, that's caught the government's attention.
They realized data has national security,
as well as economic attributes.
They need to have their hands on them.
- [Narrator] So after it announced strict data regulations
on e-commerce and other tech companies,
prompting a sell-off of many Chinese stocks this summer,
China's setting new rules for the auto industry.
This time, it's directly affecting foreign car makers,
Tesla in particular.
- Tesla will work with national authorities
in all countries to ensure data security
of intelligent and connected vehicles.
- If you're a foreign company in China,
you increasingly need to walk a high wire act.
- [Narrator] Tesla and others will be required
to store a lot of data,
for example, about traffic flow
and charging stations inside China.
Some automakers, including Tesla,
have said they're prepared to do that.
But cybersecurity analysts say authorities
could now also ask companies to share that user data,
changing the game in the world's largest auto market.
- And I'm very confident
that the future in China is gonna be great.
- [Narrator] For many global car brands,
China's been the most important growth market
in recent years.
Last year alone,
more than 130,000 Model 3s were sold there.
That's more than 1/3 of global sales for that model.
And Elon Musk is determined to expand further.
China, I think long term
will be our biggest market,
both where we make the most number of vehicles
and where we have the most number of customers.
- [Narrator] But auto analysts point out
that those growth opportunities hinge
on the government's goodwill.
- Want to very much say thank you and appreciation
for the Shanghai government and their support.
- [Narrator] And Tesla is particularly exposed.
The American company's cars rely a lot on software,
and its Model 3 was the best-selling EV in China last year.
China has already restricted military staff
and employees of key state-owned companies
from using Tesla cars for fear of data leaks,
according to people familiar with the matter.
Tesla declined to comment.
- In the past few months,
we've essentially seen a regulatory storm.
- [Narrator] Samm Sacks is a senior fellow
at Yale Law School.
She's been researching China's cybersecurity policy
for about a decade.
- Foreign automakers, they're gonna have to walk this dance
between Beijing and D.C.
And it's a high wire act navigating
between pressure from Washington
around decoupling with China,
as well as increased pressure from Beijing.
- [Narrator] As tensions between China and the US
have grown in recent years,
companies handling data have been caught
in the crosshairs.
In the US, tech firms, including TikTok and Huawei
have been targeted by government measures,
while in China.
(speaking in foreign language)
- [Narrator] Officials have stopped
what was supposed to be the world's biggest IPO
by FinTech giant Ant.
And they've also stepped up control of tech companies,
including social media conglomerate Tencent
and ride hauling giant DiDi.
(speaking in foreign language)
- [Narrator] DiDi was investigated
for national security concerns shortly after it listed
in New York, sinking the company's stock value.
DiDi said it would fully cooperate with the review.
- They fall under this broader umbrella
of the party tightening control.
The party is trying to make the private sector
better aligned and carry out its vision.
- [Narrator] So what do international car companies
have to do after October 1st
when these rules go into effect?
Tesla said it's set up data centers in China
to store locally all data generated by vehicles there.
- These new auto data rules
are a game changer because it says look,
the operating environment is changing.
- [Narrator] While the requirements
aren't really a surprise
since China laid out plans to increase control of data
in a 2017 cybersecurity law,
analysts say from now on,
companies like Tesla could be asked to share private data
with local authorities.
- Once foreign car makers move to store data locally,
they lost a lot of control.
Yes, companies very often do push back
on demands by the Chinese government
to access the data,
but the space to do that has been shrinking.
I think in part because of the spate of new regulations
that show the government is prioritizing this data
as very sensitive to national security.
- [Narrator] And the definition
of national security's broad.
According to the new rules,
any information regarding military
and government locations, and logistics data,
traffic or charging stations for electric vehicles,
for example, is deemed sensitive,
and analysts say could be requested by the government.
China's cybersecurity authority didn't respond
to our request seeking comment.
Tesla also didn't respond to our questions
about how it would handle
any such requests from authorities.
Elon Musk recently said his company
would address data security concerns.
- Data security is not only the responsibility
of a single company
but also the cornerstone
of the whole industry development.
- [Narrator] We also asked several foreign car makers,
including Ford, BMW, and others
how they would handle such requests
but they didn't respond.
Tighter rules in China
are also expected to affect how companies work.
Remember those algorithms that improve your car's features?
They may be harder to develop for foreign automakers
if data collected in China has to stay in China,
and can't be easily transferred
to research and development centers around the world.
- If data to be transferred outside of China,
then it has to go
through a very specific security check process.
- [Narrator] Xiameng Lu researches data governance.
She says separating data
for single countries means companies may end up working
on some technologies twice,
or in parallel in two different places.
- This is a major challenge to their business model.
This is very costly.
This is not economical.
This is the opposite of the most economical model.
- [Narrator] Tesla and other automakers
didn't respond to our questions
about whether this would impact innovation.
So far, investors have largely shrugged off the changes.
As Beijing's new rules come into effect,
stocks of Tesla, Daimler and other automakers popular
in China have actually done pretty well
as demand recovers from its lows during the pandemic.
In part, that's because the data affected
by changes in China only represents one part
of foreign automakers' overall business.
And industry analysts point out
that the Chinese market is simply too important
for many companies not to comply.
- This is a bellwether of what's to come.
If you're a company and you're not in the auto sector,
but you handle a lot of data,
this regulation is actually foreshadowing what's to come
across all sectors in the Chinese digital economy
in ways that could potentially impact all companies.
(pensive music)