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The Pentagon has decided to remove Hesai from its blacklist of Chinese military-affiliated companies after judging that the world’s biggest maker of laser sensors for electric vehicles did not meet the legal criteria for inclusion, according to several people familiar with the move.
Hesai’s removal from the Pentagon’s “Chinese military companies” blacklist is in an embarrassing reversal for the defence department, which added it to the list in January.
Congress passed legislation in 2021 requiring the Pentagon to compile the list. It was designed to increase scrutiny of Chinese groups operating in the US that are allegedly helping China modernise the People’s Liberation Army through what is known as the “military-civil fusion” programme.
Hesai, which is based in Shanghai and listed on Nasdaq, in May sued the Pentagon, saying there was no evidence it was connected to the PLA and calling the move “arbitrary and capricious”.
The people familiar with the decision to remove Hesai said US government lawyers were concerned that the rationale for its inclusion would not hold up to legal scrutiny under the criteria outlined in the 2021 legislation.
Hesai last month asked a federal court in Washington for a summary judgment on the matter and a hearing was scheduled for next month.
The U-turn highlights the difficulties that the US government has faced taking action against Chinese groups that is believes pose a risk to national security.
In 2021, the Pentagon removed Xiaomi, the Chinese smartphone maker, from the blacklist after 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 did not comment. Hesai said the blacklisting was a “mistake”.
The Chinese embassy in Washington said it was “happy to see the US correct the discriminatory practices and provide a fair, just and non-discriminatory business environment for Chinese companies”.
Hesai — which in 2021 said it formed a partnership with Zoox, an autonomous robotaxi company owned by Amazon — is one of many Chinese groups coming under scrutiny in the US.
The Biden administration has been investigating whether Chinese-made “connected vehicles” pose a threat to Americans because of the data captured by onboard computers and sensors.
The commerce department is preparing to ban the use of Chinese software in EVs and autonomous vehicles. One person familiar with the move said the ban would not include light detection and ranging technology, or lidar, which has puzzled some security experts.
In a prospectus filed with the US Securities and Exchange Commission last year, Hesai acknowledged there were risks associated with having most of its operations in China. It said Beijing “may influence or intervene in our operations at any time”, in addition to having possible oversight influence on “data security”.
Hesai has just under 50 per cent of the global automotive industry’s lidar market share. In 2023, the US accounted for roughly 40 per cent of its Rmb1.8bn ($250mn) in revenue.
The Pentagon did not initially explain the rationale for blacklisting Hesai. But in a recent court filing, it said it was “affiliated” with the Chinese Ministry of Industry and Information Technology and engaged in research partnerships with the agency.
Hesai responded that MIIT was akin to a US regulatory agency, adding that the Pentagon did not provide a “shred of evidence that Hesai contributes to the Chinese defence industrial base”.
James Mulvenon, an expert on the Chinese military and chief intelligence officer at Pamir Consulting, said Congress would likely update the 2021 law in a way that would allow the Pentagon to put Hesai back on the blacklist.
“Just because Hesai doesn’t meet the black letter of the current statute doesn’t change the fact that they are a proven vendor for the Chinese military. The future statute language will cover them,” Mulvenon said.
He added in a report this year that there was evidence Hesai was a vendor for the PLA.
In a statement, Hesai said: “Our products are strictly for commercial and civilian use, and we have no connection to the Chinese military or any other military body. We are not a vendor to any military bodies in any country.”
While the Pentagon blacklisting did not have any regulatory impact, it created reputational risk that battered Hesai’s share price.
Craig Singleton, a China expert at the Foundation for Defense of Democracies think-tank, said the company would continue to face scrutiny and uncertainty around its regulatory status.
“The possibility of Hesai being relisted in the future raises critical concerns about the long-term viability and security implications of such collaborations,” said Singleton. “In this volatile regulatory landscape, it’s a case of ‘buyer beware’ for potential American partners.”
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