The Blacklisted Component That’s Disrupting the Luxury-Car Market

BEIJING—A commonly used magnetic component made by a blacklisted Chinese company is behind the hold up of thousands of luxury-car shipments to the U.S., illustrating how American trade policy is upending global supply chains.

The part, a LAN transformer used to connect cars and computers to networks, was inside a control system of vehicles being shipped by Volkswagen to the U.S. from Europe and Mexico.

The tiny part was made by a company called Sichuan Jingweida Technology, a person familiar with the matter said, which in December was added by the Department of Homeland Security to the U.S. entity list over its alleged use of forced labor in China.

The Chinese company supplied the small part to another supplier and didn’t directly provide the LAN transformer to Volkswagen. Its blacklisting caused the carmaker to hold back imports of Porsche, Audi and Bentley cars into the U.S., with delays expected to last through March while Volkswagen replaces the part.

The Chinese manufacturer, also known as JWD Technology, declined to comment.

Volkswagen confirmed that the problematic part was a LAN transformer and that the sub-supplier was added to the entity list in December. Volkswagen also said it is working to ensure its supply chain complies with standards, and that it is using existing procedures and looking for new solutions to prevent forced labor in its supply chain.

The Financial Times reported earlier that Volkswagen group cars were held up at U.S. ports after the carmaker found that an unspecified subcomponent breached the forced-labor prevention law.

The cause of the Volkswagen delay illustrates the complexities businesses face complying with a two-year old U.S. law that blocks the imports of goods tied to Xinjiang. The region in far western China is home to millions of Uyghur Muslims and the government is carrying out a forced assimilation campaign that the U.S. has denounced as genocide. Beijing denies the accusations.

The law is hitting the automotive industry after already affecting apparel makers and solar energy manufacturers that have had shipments to the U.S. detained or sent back.

This case, coupled with recent reports from researchers linking forced labor to auto supply chains, has likely spooked the automotive industry and industrial manufacturers with links to the region, said Oliver Montique, an analyst at Eurasia Group. Automotive components vulnerable to allegations of ties to forced labor include electronics, aluminum, tires, steel and batteries, he said—similar to the items identified in some research reports.

“Even as automakers seek to improve visibility in [the industry’s] supply chain, it will take a long time, and we could see more incidents like this,” Montique said.

Blacklisted supplier touted links to global companies

JWD Technology’s addition to the Uyghur Forced Labor Prevention Act entity list led one of Volkswagen’s suppliers to alert the carmaker that its sub-supplier has been blacklisted. That alert led Volkswagen to notify the U.S. authorities and hold the imports at the border.

JWD Technology had listed Tesla, BMW, HP, Cisco, Google and Amazon among others as its partners on an undated company profile video and a 2021 post on its Chinese social-media account. The video and post were removed after The Wall Street Journal inquired about them.

BMW said JWD Technology isn’t listed as a supplier according to its supply chain mapping, and U.S. customs hasn’t objected to the import of its products because of the forced-labor act.

HP said it found no evidence of a direct relationship between it and JWD Technology. Cisco said it conducts due diligence consistent with relevant U.N. principles. Amazon, Google and Tesla didn’t respond to requests for comment.

China’s exports of automotive components tripled in the 10 years to 2023 to around $79 billion, Chinese customs data show. Many are destined for the U.S., Mexico, Germany and Japan.

A car typically consists of tens of thousands of components—around 30,000 for an internal combustion engine car, and some 20,000 components for an electric vehicle, according to some estimates. A single component could have multiple tiers of suppliers, at times going five or six companies up the chain.

Automakers often have a good grip on their top suppliers, but it is hard to know details of where subcomponents or raw materials come from further upstream.

U.S. officials have expanded the forced-labor entity list four times, and it now has more than 30 companies.

JWD Technology was among three added most recently. It is based in Mianyang, a city in Sichuan province more than 1,500 miles from Ürümqi, the capital of Xinjiang. The U.S. accuses the company of participating in government-sponsored labor-transfer programs of persecuted ethnic minorities to the company.

Founded in 2002, JWD Technology produces network and power transformers, RF radio frequency filters and other products used in network communication, consumer electronics and automotive communication, its website shows.

More than 130 types of LAN transformers are listed on the company’s website.

Many of Volkswagen’s U.S. car imports come from Europe and Mexico, according to S&P Global Market Intelligence. The German carmaker imported $199 million of auto parts to Mexico from China in 2023, which included wheels, engine parts, drive axles and electrical switches, S&P Global Market Intelligence said. Data on Volkswagen’s imports of China-made parts to Europe wasn’t available.

Xinjiang isn’t a major manufacturing hub, but it is home to producers of electronics and components, as well as steel, aluminum, copper and other raw materials.

Researchers at the Australian Strategic Policy Institute and Sheffield Hallam University, as well as Human Rights Watch have published separate reports warning that companies need heightened scrutiny to check components to ensure they are free of Xinjiang forced-labor links.

These studies have triggered supply chain reviews among automakers, industry executives said, but companies have found that tracking provenance isn’t easy.

Suppliers might be hesitant to disclose where they obtain their subcomponents or materials for fear of losing their commercial advantage. And for Chinese suppliers, it could be politically sensitive to disclose information in the context of Xinjiang’s forced labor, given the Chinese government denies such a problem exists.

John Foote, a Washington, D.C.-based lawyer who heads the customs practice at Kelley Drye & Warren, said the case shows Volkswagen took compliance with the forced-labor act seriously.

“It took a massively commercially disruptive step out of a clear sense of obligation to comply with U.S. law,” he said.

Write to Yoko Kubota at [email protected]