Policy Focus on Embodied AI and Flying Cars; Middle East Tensions Hit Auto Exports

China’s 2026 Government Work Report, delivered at the annual Two Sessions, explicitly highlighted “embodied intelligence” for the first time and emphasized fostering new quality productive forces such as the low-altitude economy and intelligent connected vehicles. The report allocated RMB 25 billion to support consumer goods trade-in programs, aiming to accelerate vehicle-to-grid integration and green transformation. Multiple automotive industry representatives urged the government to expedite the establishment of autonomous driving standards, promote humanoid robot applications, and advance reforms in low-altitude airspace management. Meanwhile, escalating tensions in the Middle East have prompted automakers including Toyota, Tata Motors, and Hyundai to delay or reduce exports to the region, dealing another blow to global supply chains amid geopolitical instability. In addition, the European Union has introduced the Industrial Acceleration Act, strengthening “Made in EU” requirements by proposing higher local content ratios for automotive components and imposing restrictions on foreign ownership. Japan’s Denso plans to invest $8.2 billion to acquire ROHM Semiconductor, bolstering its power semiconductor capabilities. Meanwhile, Nexperia’s China operations suffered a system shutdown due to a corporate control dispute, underscoring growing supply chain security risks.