5 days ago
Why China's rare-earth export restrictions threaten new-car production
China's restriction on exports of rare earths and magnets threatens to shut down vehicle and parts assembly in the coming weeks, industry executives and analysts said.
The materials are crucial for a wide range of automotive components — from motors and sensors used in electric vehicles to automatic transmissions and speakers. The auto industry, like other sectors, is heavily reliant on China for the rare earths and magnets used in those parts, and companies have said securing the materials has become exceptionally difficult since China restricted exports in April in response to U.S. tariffs.
The auto industry, already grappling with other tariff impacts, is now on the brink of its third major supply chain shock this decade, following the pandemic and the microchip shortage. Some industry executives are bracing for the rare-earth restrictions to have an impact comparable to the semiconductor shortage, which caused carmakers to cut more than 17 million vehicles from production schedules in 2021 through 2023, according to an estimate by AutoForecast Solutions.
'The impact will be much larger than people are anticipating,' said Rob Sharpe, senior vice president of sales and marketing for supplier Astemo Americas, at a June 6 press event.
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Here, Automotive News breaks down the growing rare-earth crisis and how the auto industry is responding to it.
Rare earths are a group of 17 heavy metals used by industries in catalysts and magnets. Demand for the metals has grown over the years because of their applications in advanced technologies, including magnets that can operate in extreme heat.
In addition to automotive, other major sectors that rely on rare earths include consumer electronics, aerospace, semiconductors and energy, as well as defense contractors.
Rare-earth magnets are crucial for the auto industry and are used in a wide range of parts and systems.
EVs and hybrids are particularly exposed to rare-earth magnet shortages in large part because of their use in electric motors.
'The main powertrain mechanism of an EV is a bunch of high-powered, high-energy magnets that move those cars,' said Dean Evans, co-founder of rare-earth recycling company Evolution Metals and Technologies, on a June 10 episode of the Daily Drive podcast.
But traditional internal combustion vehicles also have parts that contain rare earths and magnets.
Automatic transmissions, throttle bodies, alternators, sensors, seat belts, speakers, lights, power steering and cameras include rare earths and magnets, according to a May 9 letter industry groups MEMA and the Alliance for Automotive Innovation sent to Trump administration officials.
On April 4, China restricted the export of seven medium and heavy rare-earth metals: samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium. It now requires companies to obtain special approval to export them.
The move was part of China's response to tariffs the Trump administration placed on imports of Chinese products in April.
Trade tensions boiled over in the ensuing days, with both the U.S. and China raising effective tariff rates on products from the other country as high as 145 percent.
China and the U.S. reached a deal on May 12 that lowered tariff rates for 90 days as the two governments looked to reach a broader deal.
White House officials expected exports of rare earths and magnets to be freed up as a result of the deal, but license approvals out of China remain sluggish. Each side has accused the other of violating the trade truce.
The restrictions have greatly reduced automakers' and suppliers' access to rare earths, but China has reportedly issued some export licenses. According to a June 9 Reuters report, China granted temporary export licenses to rare-earth suppliers for the Detroit 3, some of which are valid for six months. It was not known what quantity or which items are covered by the approvals, Reuters reported.
China's Ministry of Commerce has also said it is willing to fast-track approval of rare-earth exports for 'eligible users" in the European Union.
China controls about 65 percent of global mining and 88 percent of refining of rare earths, according to a May 27 analysis by Morgan Stanley.
But for certain metals such as terbium that the auto industry uses for magnets in motors, China refines virtually all global supply. According to the Center for Strategic & International Studies bipartisan think tank, China accounts for 99 percent of global heavy rare-earth processing.
'China has developed advanced processing technologies and has kept this expertise closely guarded through licensing and export controls,' S&P Global Mobility wrote in a May 1 report.
Other countries, including the U.S., are looking to boost domestic extraction and processing of rare-earth metals to become less dependent on China. But building up those capabilities will take years, leaving countries vulnerable to geopolitical and trade risks in the meantime, experts said.
Some auto manufacturers have already been forced to shut down production. Ford idled an assembly plant in Chicago for a week in May because of a shortage of rare-earth metals used to make brake boosters.
Meanwhile, several supplier plants in Europe were shut down in June because of the export restrictions, according to the CLEPA trade group, which represents European parts makers.
In a June 4 statement, CLEPA said only about a quarter of its members' export license applications have been approved by the Chinese government since April.
'Procedures are opaque and inconsistent across provinces, with some licenses denied on procedural grounds and others requiring disclosure of IP-sensitive information,' the trade group said.
Executives and analysts expect the number of supplier factories impacted by the issue to grow in the coming days and weeks, leading to more assembly plant shutdowns.
'There are so many magnets and rare earths in vehicles that, just statistically, there will be one or the other component that will not be able to be shipped, so the car cannot be built,' said Mathias Miedreich, the head of German supplier giant ZF's electrified powertrain technology division, at a June 3 media briefing.
Automakers and suppliers are scrambling to find alternative sources for materials, but options are limited or sometimes impossible to find given China's grip on the market.
Some automakers and suppliers are looking into shifting parts production to China because completed components containing the metals and magnets are not subject to the export restrictions.
'If it's in an assembly, you don't have an issue,' Sharpe said. 'You'll have to pay a tariff on it, but at least you'll get the product.'
Suppliers are also examining ways to take rare-earth magnets out of products they make, though Sharpe said that often leads to performance degradation. And any changes companies settle on will require them to go through additional validation and testing, he said.
'There are some solutions, but it's not near term, because there's validation and prototypes and a lot of work that goes into changing those parts,' Sharpe said.
U.S. and Chinese officials met in London on June 9 and June 10 for a round of trade discussions. Gaining more access to China's rare-earth materials and magnets was a top priority for U.S. negotiators entering the meetings.
There was no news of any deals as of press time, though U.S. Commerce Secretary Howard Lutnick told reporters on June 10 that talks with China were 'going well.'
Michael Martinez contributed to this report.
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