The United States government announced a measure that will impact the operations of electric vehicle manufacturer Polestar in the country. Starting in model year 2027, the company will be prevented from selling new cars in the American market, after the Department of Commerce revoked the authorization that had previously been granted under the Connected Vehicles Rule.
This decision represents the end of sales of brand new vehicles in the USA for the Swedish electric car brand, which belongs to the Chinese group Geely, even though one of its models is produced in American territory.
The US Department of Commerce’s determination
The Bureau of Industry and Security, a division of the United States Department of Commerce, denied Polestar (Nasdaq: PSNY) permission to sell automobiles in the country starting in model year 2027. The action follows the guidelines of the current Connected Vehicle Rule.
This legislation, which was finalized in January 2025, establishes a ban on entry into the American market for vehicles that have a “significant connection” with countries such as China or Russia. The software-related restrictions will come into effect in the 2027 model year, while the hardware limitations will come into effect in 2030. The rule covers a wide range of automotive technologies, including telematics systems, cameras, microphones, GPS, Bluetooth, cellular modules and autonomous driving software, applicable to gasoline, hybrid and electric cars.
The main concern regarding Polestar is not linked to where its vehicles are manufactured, but rather its ownership structure. The brand is majority-owned by Geely, a Chinese automotive giant that also owns Volvo Cars. This connection triggers the rule’s provisions regardless of where the factories are situated, echoing warnings from the Biden administration in 2024 about the potential for vehicles with Chinese connections to collect data from American drivers.
The outcome is particularly notable given the global distribution of Polestar’s production. The Polestar 3 model is manufactured at Volvo’s plant in Charleston, South Carolina, while the Polestar 4 is assembled in Busan, South Korea. In both cases, production does not take place in China.
Difference in treatment between Volvo and Polestar
A curious aspect of the situation is that Volvo, also controlled by Geely, received authorization to continue selling its connected vehicles in the North American market.
Despite sharing the same parent company, the two automakers had opposite results. Volvo operates as a separate, publicly traded automotive company and has greater recognition and a more established presence in the US. In contrast, Polestar is more deeply integrated into Geely’s structure, sharing vehicle and software platforms with other brands in the group. The exact reason for the distinction remains open, but the fact is that one Geely brand continues to operate and the other will have its new sales ended.
Polestar said it will continue to sell existing stock of Polestar 3 and Polestar 4 models in the US. Additionally, the company will maintain support for current owners through its service network. However, the Polestar 4, which went on sale in the United States just over a month ago, already has a deadline for new purchases.
Polestar and its renewed focus on Europe
Given the scenario in the USA, Polestar is redirecting its investments to Europe, a region where it already concentrates most of its commercial activities. The European continent accounts for about 80% of the company’s retail sales volume, and 94% of sales in the first quarter of 2026 came from markets outside the United States.
The company plans to expand its sales network in Europe and begin local production. The future compact SUV Polestar 7, for example, will be manufactured on the European continent. Other growing markets, such as Southeast Asia, Eastern Europe, Latin America and Canada, were also highlighted by the automaker.
“The automotive industry is entering a new phase, driven by regional dynamics,” declared CEO Michael Lohscheller, describing Europe as “the main engine of growth” for the company.
This strategic move takes place in a context of an increase in Polestar’s sales volume, but with a drop in profit margins. The company recorded a record year in 2025, with more than 60,000 vehicles sold and revenue exceeding US$3 billion. The first quarter of 2026 was also a record, with 13,126 deliveries, an increase of 7%. However, gross margin fell to -3.2% in the first quarter, compared to a positive 10.3% in the previous year, due to pressures on prices, tariffs and the composition of the product mix.
The impact of the decision and the precedent set
The ban on access to the American market impacts Polestar less severely than it would affect other automakers, as the USA has never been its main focus. With 94% of first quarter sales already coming from other markets, the measure is seen more as a strategic adjustment than a devastating setback. The company’s priority to focus on Europe aligns with its real market forces.
However, the importance lies in the precedent created. The Connected Vehicles Rule has demonstrated its ability to block a Swedish-brand electric vehicle, partially manufactured in the USA, solely due to Chinese participation in its chain of control. This sends a clear message to all automakers that have Chinese capital or technology in their operations, and comes just as the US seeks to expand its domestic production of electric vehicles. The distinction between Volvo (permitted) and Polestar (banned) also highlights the discretion of the rule, where the corporate structure and origin of the software, rather than the assembly location, become decisive factors for market entry.