Q&A with BMI's Santiago Arieu on the magnet crisis disrupting global auto production

Yahoo

a day ago

The introduction of a new licensing system by China, now slowing the export of rare earth elements, has sent a ripple of disruption across global vehicle production lines, raising the spectre of stalled factories and delayed deliveries.
Rare earth magnets, often invisible yet indispensable, are the backbone of modern automotive technology. From the motors powering electric vehicles (EVs) to the sensors, steering systems, and regenerative brakes that define the modern driving experience, these small but mighty components are everywhere. But as China tightens its grip on these critical exports, amid a backdrop of rising geopolitical tension and new US tariffs, the industry is facing a reckoning.
Europe, which sources 98% of its rare earth magnets from China, finds itself particularly exposed. Efforts to bolster domestic supply through initiatives like the EU's Critical Raw Materials Act have thus far failed to match China's scale or competitiveness. Meanwhile, automakers are issuing warnings: stockpiles are dwindling, and the clock is ticking. Ford has already paused operations at a major plant, Suzuki has pulled back production on key models, and Germany's influential automotive industry group VDA (Verband der Automobilindustrie) has raised red flags about looming shutdowns.
Behind the headlines, the implications are even more serious for the EV sector, which depends on rare earth materials far more than traditional internal combustion engine vehicles. As electrification accelerates globally, the threat to supply chains grows more acute, and more costly.
In this Q&A, Santiago Arieu (SA), Senior Autos Analyst at BMI, a Fitch Solutions company, sheds light on how the rare earth bottleneck could shape the next chapter for automakers and auto financiers. In conversation with Alejandro Gonzalez (AG), editor of Motor Finance Online.
SA: If the supply constraints for these critical minerals do not improve, we believe it is highly likely that we will need to implement downward revisions to our 2025 vehicle forecasts (involving both production and sales projections). Regarding regional exposure, whilst rare earth magnets are utilised across all vehicle types, we highlight that markets and regions producing more technologically advanced vehicles with a greater number of features requiring these components face disproportionate risk.
SA: Whilst we believe some automakers may consider reverting to older EV motor technologies or reducing premium features that significantly rely on rare earth magnets, we believe that carmakers are likely to exhaust all other options before implementing such measures. It is worth noting that these components are strategically crucial as they enable carmakers to differentiate their products in increasingly competitive markets. Moreover, many of these magnet-dependent features form a central part of the value proposition for modern vehicles. Removing such features would risk compromising brand positioning and consumer appeal, particularly in premium segments where these differentiators justify higher price points.
SA: We believe the disruptions we are beginning to observe stemming from rare earth supply constraints will drive regions such as North America and Europe to accelerate and facilitate the onshore production of these minerals and components. That said, we forecast a substantial dependency on Mainland China for these critical materials and components will persist in the short term (at least 6 to 12 months). This is because the development of alternative supply chains represents a significant industrial challenge that cannot be resolved quickly, particularly given China's dominant position in processing capacity and technical expertise built over several years.
SA: We believe the EU needs to significantly enhance economic incentives and simplify regulatory procedures to accelerate the development of new rare earth processing facilities within its borders. Currently, European operations struggle to compete with Chinese producers on cost efficiency and scale, creating a critical vulnerability in the automotive supply chain. To achieve genuine supply chain resilience, the EU could introduce more robust financial support measures and cut red tape, enabling European processors to achieve commercially viable economies of scale.
SA: We believe that if industry production volumes are negatively affected by rare earth supply issues, similar to the semiconductor shortage in 2020-2021, vehicle prices are very likely to rise due to rapidly shifting supply-demand dynamics. These price increases could have a substantial impact on vehicle sales volumes, as higher costs would further strain affordability at a time when vehicle pricing is already elevated. We also see the potential for this situation to lead to tighter auto financing terms across Europe, as ongoing rare earth mineral supply constraints could create additional challenges for EV pricing.
China's rare earth clampdown strains global auto production
"Q&A with BMI's Santiago Arieu on the magnet crisis disrupting global auto production" was originally created and published by Motor Finance Online, a GlobalData owned brand.
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