Auto companies hit the panic button

The Star

a day ago

LONDON: Frank Eckard, chief executive officer (CEO) of a German magnet maker, has been fielding a flood of calls in recent weeks.
Exasperated automakers and parts suppliers have been desperate to find alternative sources of magnets, which are in short supply due to Chinese export curbs.
Some told Eckard their factories could be idled by mid-July without backup magnet supplies.
'The whole car industry is in full panic,' said Eckard, CEO of Magnosphere, based in Troisdorf, Germany. 'They are willing to pay any price.'
Car executives have once again been driven into their war rooms, concerned that China's tight export controls on rare earth magnets – crucially needed to make cars – could cripple production.
US President Donald Trump said last Friday that Chinese President Xi Jinping agreed to let rare earths minerals and magnets flow to the United States.
A US trade team was scheduled to meet Chinese counterparts for talks in London.
The industry worries that the rare earths situation could cascade into the third massive supply chain shock in five years.
A semiconductor shortage wiped away millions of cars from automakers' production plans, from roughly 2021 to 2023. Before that, the Covid pandemic in 2020 shut factories for weeks.
Those crises prompted the industry to fortify supply chain strategies.
Executives have prioritised backup supplies for key components and re-examined the use of just-in-time inventories, which save money but can leave them without stockpiles when a crisis unfurls.
Judging from Eckard's inbound calls, though, 'nobody has learned from the past', he said.
This time, as the rare earths bottleneck tightens, the industry has few good options, given the extent to which China dominates the market.
The fate of automakers' assembly lines has been left to a small team of Chinese bureaucrats as it reviews hundreds of applications for export permits.
Several European auto-supplier plants have already shut down, with more outages coming, said the European Association of Automotive Suppliers (CLEPA).
'Sooner or later, this will confront everyone,' said CLEPA secretary-general Benjamin Krieger.
Cars today use rare earths-based motors in dozens of components: side mirrors, stereo speakers, oil pumps, windshield wipers and sensors, for fuel leakage and braking sensors.
China controls up to 70% of global rare earths mining, 85% of refining capacity and about 90% of rare earths metal alloy and magnet production, consultancy AlixPartners said.
The average electric vehicle uses about 500g of rare earths elements, and a fossil fuel car uses just half that, according to the International Energy Agency.
China has clamped down before, including in a 2010 dispute with Japan, during which it curbed rare earths exports.
Japan had to find alternative suppliers, and by 2018, China accounted for only 58% of its rare earth imports.
'China has had a rare earth card to play whenever they wanted to,' said Mark Smith, CEO of mining company NioCorp, which is developing a rare earth project in Nebraska, scheduled to start production within three years.
Across the industry, automakers have been trying to wean off China for rare earth magnets, or even develop magnets that do not need those elements. But most efforts are years away from the scale needed.
As auto companies scout longer-term solutions, they are left scrambling to avert imminent factory shutdowns. Automakers must figure out which of their suppliers need export permits. Mercedes-Benz, for example, is talking to suppliers about building rare earth stockpiles.
Analysts said the constraints could force automakers to make cars without certain parts and park them until they become available, as GM and others did during the semiconductor crisis.
Automakers' reliance on China does not end with rare earth elements.
A 2024 European Commission report said China controls more than 50% of global supply of 19 key raw materials, including manganese, graphite and aluminum.
Andy Leyland, co-founder of supply chain specialist SC Insights, said any of those elements could be used as leverage by China. — Reuters