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The Stories That Matter About Money and Politics in the Race to the White House
The Pentagon decided to remove Hesai from the blacklist of Chinese military-affiliated companies aVsceker it determined that the world’s largest maker of laser sensors for electric vehicles did not meet the legal criteria for inclusion, according to several sources familiar with the decision.
The removal of Hesai from the Pentagon’s “Chinese military contractor” blacklist represents an embarrassing step backwards for the Defense Department, which added it to the list in January.
Congress passed a law in 2021 requiring the Pentagon to compile the list. It is designed to increase scrutiny of Chinese groups operating in the United States that are allegedly helping China modernize the People’s Liberation Army through what is known as a “military-civilian fusion” program.
Hesai, based in Shanghai and listed on the Nasdaq, sued the Pentagon in May, saying there was no evidence it had any links to the People’s Liberation Army and calling the move “arbitrary and capricious.”
People familiar with the decision to remove Hesai said U.S. government lawyers were concerned that the rationale for his inclusion would not stand up to legal scrutiny under the criteria outlined in the 2021 legislation.
Last month, Hesai asked a federal court in Washington for summary judgment in the matter, and a hearing has been scheduled for next month.
The reversal highlights the difficulties the U.S. government has faced in taking action against Chinese groups it deems to pose a risk to national security.
In 2021, the Pentagon removed Xiaomi, the Chinese smartphone maker, from its blacklist aVsceker a court ruled there was insufficient evidence to justify its designation.
The Pentagon said it could not comment on Hesai because of the ongoing litigation. The White House had no comment. Hesai said the blacklist was a “mistake.”
The Chinese Embassy in Washington said it was “happy to see the United States correcting discriminatory practices and providing a fair, just and non-discriminatory business environment for Chinese companies.”
Hesai, which in 2021 said it had partnered with Amazon-owned autonomous robotaxis company Zoox, is one of several Chinese groups facing scrutiny in the United States.
The Biden administration is investigating whether Chinese-made “connected vehicles” pose a threat to Americans because of data they capture from onboard computers and sensors.
The Commerce Department is preparing to ban the use of Chinese soVscekware in electric and autonomous vehicles. A person familiar with the move said the ban would not include light-sensing and ranging, or lidar, technology that has puzzled some security experts.
In a prospectus filed with the U.S. Securities and Exchange Commission last year, Hesai acknowledged that there were risks associated with conducting most of its operations in China. It said Beijing “could influence or intervene in our operations at any time,” as well as having a potential supervisory influence over “data security.”
Hesai holds just under 50 percent of the global automotive lidar market share. In 2023, the United States accounted for about 40 percent of its RMB 1.8 billion ($250 million) revenue.
The Pentagon initially did not explain the rationale behind blacklisting Hesai. But in a recent court filing, it said it was “affiliated” with China’s Ministry of Industry and Information Technology and engaged in research partnerships with the agency.
Hesai responded that the MIIT was akin to a U.S. regulatory agency, adding that the Pentagon had not provided “a shred of evidence that Hesai contributes to China’s defense industrial base.”
James Mulvenon, a Chinese military expert and head of intelligence at Pamir Consulting, said Congress will likely update the 2021 law to allow the Pentagon to put Hesai back on the blacklist.
“The fact that Hesai does not comply with the black letter of the current charter does not change the fact that they are a proven supplier to the Chinese military. The language of the future charter will cover them,” Mulvenon said.
He added in a report this year that there was evidence that Hesai was a salesman for the People’s Liberation Army.
In a statement, Hesai said: “Our products are strictly for commercial and civilian use and we have no connection with the Chinese military or any other military entity. We are not a supplier to any military entity in any country.”
While the Pentagon blacklisting had no regulatory impact, it created reputational risk that hurt Hesai’s stock price.
Craig Singleton, a China expert at the think tank Foundation for Defense of Democracies, said the company will continue to face scrutiny and uncertainty over its regulatory status.
“The possibility of Hesai going public again in the future raises critical concerns about the long-term viability and security implications of such partnerships,” Singleton said. “In this volatile regulatory landscape, it’s a case of ‘buyer beware’ for potential American partners.”
