Mercedes-Benz Faces Possible US Ban Under Legislation Targeting Chinese-Made Vehicles

US Lawmakers Weigh Legislation to Ban Car Sales by Companies Tied to Foreign Adversaries

US lawmakers are considering legislation that would prohibit the sale or production of vehicles in the US by companies with ties to foreign adversaries, a move that could impact Mercedes-Benz Group AG's business in the world's second-largest auto market. The provision, part of a broader auto-industry bill, would bar companies with at least 15% foreign ownership from operating in the US.

The bill, which is still in its early stages and will likely undergo changes, is set to be combined with a broader transportation package before receiving a vote on the House floor. It would also need to pass the Senate. The measure's current construction risks making Mercedes-Benz Group AG a casualty of Washington's growing efforts to keep China out of the domestic auto industry.

The German luxury carmaker is in talks with government officials to find a solution, according to a person familiar with the matter. Mercedes-Benz Group AG has a significant presence in the US, with a factory in Tuscaloosa, Alabama, that has produced over 4.5 million vehicles since the 1990s. The company employs thousands of people and has assembled vehicles in the US for decades.

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The legislative provision effectively bans companies from the US based on certain thresholds, such as foreign ownership. Although the bill contains exemptions for companies that already produce and sell vehicles in the US, those exemptions do not extend to companies with equity stakes held by state-owned enterprises.

China's BAIC Motor Corp., a state-owned carmaker, holds nearly 10% of Mercedes-Benz Group AG's stock, while Li Shu Fu, the billionaire founder and chairman of Chinese carmaker Geely, also holds nearly 10% of the company's equity. This could potentially push the company above the 15% threshold targeted by the provision of the bill, called the Motor Vehicle Modernization Act.

The situation highlights the difficulty of legislative and regulatory efforts to insulate the US from Chinese carmakers. Chinese companies are rapidly growing sales around the world and have long-established ties with many major Western auto companies. Mercedes-Benz Group AG has been one of the top-selling luxury car brands in America for decades.

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The US auto industry has urged administration officials to keep Chinese cars out, citing national security risks. Ford Motor Co. Chief Executive Officer Jim Farley recently said failing to do so would be "devastating" to domestic manufacturing.

Republicans and Democrats in the House and Senate are pushing to take the Commerce Department's restrictions even further. Senators Elissa Slotkin of Michigan and Bernie Moreno of Ohio have introduced a bill that bans the production, importation, sale, or resale of connected vehicles, software, and hardware linked to China and other foreign adversaries.

Michigan Representatives Debbie Dingell and John Moolenaar introduced a similar bill in the House earlier this month. The bills aim to permanently enshrine the Commerce Department's ban into law to prevent future administrations from reversing it.