Connectivity is accelerating – but will regulatory requirements determine market access?

Connected services are continuing to become highly lucrative for the automotive industry, but they’re also becoming increasingly regulated. The enforcement of the US’ Connect Vehicle Rule in particular, is raising the stakes. If OEMs don’t remain attentive to software provenance, data governance and regulatory trust, they risk being shut out of key markets.

A growing population of software-defined vehicles (SDVs) is rapidly increasing the value of connectivity. By 2035, connected services, in-vehicle apps and over-the-air services are expected to be among the biggest revenue streams within vehicle software and the electronic domain industries.

However, for governments and authorities, the growth of connected vehicles also raises concerns about national security and data protection. Questions are being asked about the origins of vehicle software, such as who makes it, who controls it and who has access to its data. New legislation is being introduced across markets, and as some OEMs are already discovering, non-compliance can have a dramatic effect.

How does the Connected Vehicle Rule impact OEMs?

The US government’s Connected Vehicle Rule, which was introduced in 2025, aims to restrict connected-vehicle software and hardware with links to China and Russia. It means that an OEM whose connected vehicles contain software from model year 2027 – and over the next years, hardware – linked to either country, can be denied authorization to sell its vehicles in the US.

We have recently seen how two companies with the same geographic background, the same US manufacturing footprint and shared ownership links, can face vastly different outcomes under the rule. The exact reasons determining who is authorized and who is not are unclear, but it does highlight how regulatory requirements around connected vehicles can affect market access.

This is not an entirely new development. For several years, Europe has been strengthening requirements around vehicle cybersecurity, software and data through regulations such as UN R155 and, more recently, the EU Data Act. Failing to meet these requirements can also prevent a vehicle from being sold legally.

Unlike the Connected Vehicle Rule, however, these European requirements mainly focus on cybersecurity, data governance and type approval rather than foreign-adversary ownership or technology links.

How does this affect the development of SDVs?

While OEMs have been moving towards region-specific solutions for some time, this trend could now be amplified by a greater split in where OEMs place their regional focus. Affected OEMs, for instance, could reduce their focus on the US, while placing greater emphasis on European or pan-global markets excluding the US as crucial overseas sales points.

In general, OEMs that can deliver strong data governance and can secure regulatory compliance will increasingly have a competitive advantage. For example, an OEM with Chinese connections that did gain authorization to the US market, may have benefited from a strong track record and capabilities in data security, combined with continued local manufacturing investments. The same will apply to Europe: companies that are compliant and know what is required in specific markets will be able to leverage that knowledge and experience.

How are OEMs responding to changing regulations?

These developments are prompting many OEMs to rethink their strategies when it comes to connected vehicles. For example, in the US, automakers that have been producing selected models in China are now relocating production to other countries. Meanwhile OEMs may also need to reassess their partners and suppliers whose software, hardware or ownership structures create exposure under the rule.

As OEMs start developing different platforms and vehicle architectures specific to each region, they also need to re-strategize and reevaluate their global supply chains. In some instances, this means ending decades-long partnerships – and starting new partnerships to secure good governance, data security and trust.

While this hits Chinese and China-dependent manufacturers the strongest, legacy OEMs can also face an additional challenge because they must manage a broader installed base, more vehicle architectures, longer product lifecycles and a more complex supplier landscape while transitioning toward software-defined development.

But ultimately all OEMs will have to find a way to navigate the regulatory landscape in every country they operate in, as this can now be seen as a fundamental capability needed to compete. If they don't, they risk being locked out of the connected services market during what is arguably its strongest growth phase.

For more insights and industry trends, read our articles Who controls the SDV tech stack? and Software-defined vehicles and AI: the next automotive evolution. You can also explore more content on our WirelessCar Insights Blog.