It is hardware. The embargo is on the connectivity silicon used in China because it is full of Chinese backdoors. Unlike the chips made elsewhere that have US backdoors

Why would China want you to have a car that doesn't send data back?

I mean neither would any other manufacturer, but with China you just know the government probably requires all that surveillance tech be added. Like voice control microphones on the OUTSIDE of some new Chinese cars. Why else would you have that?

Great question.