Carmakers Hit by China's Rare Earth Export Controls on Components

Auto manufacturers are grappling with renewed supply chain disruptions following China’s export controls on rare earth magnets, critical materials for vehicle motors, braking systems, and steering components. China supplies approximately 90% of the world’s rare earth magnets, leaving the automotive industry heavily reliant on its exports.

According to a Reuters report, automotive executives are seeking alternative sources for these vital components as China’s new regulations take effect. One major change involves a mandatory online tracking system for rare earth magnet producers, requiring them to report transaction volumes and disclose customer information. This complicates supply logistics for international buyers.

In addition, Chinese authorities have slowed the approval process for export licenses, causing delays and material shortages. Last week, US auto suppliers sent a formal letter to the Biden administration urging immediate action. The letter warned of "supply risks that could severely affect US automotive production."

On June 6, President Donald Trump announced that Chinese President Xi Jinping had agreed to allow rare earth magnet exports to the United States. The following day, the Chinese Ministry of Commerce authorized a separate fast-track licensing channel for European Union companies, CNBC reported.

Despite these measures, supply uncertainty persists. US and Chinese trade negotiators are scheduled to meet in London to discuss the fragile trade truce, which is expected to be a focal point of the talks.

Rare earth magnets are essential for electric vehicle (EV) motors and critical automotive systems, including sensors, power steering, and regenerative braking. “We anticipate EV production to be disproportionately affected, as EVs require significantly more rare earth magnets than internal combustion engine vehicles,” noted BMI.

The report suggests some manufacturers may need to shift portions of their production to China to mitigate supply bottlenecks. AlixPartners highlights that China accounts for 70% of global rare-earth mining, 85% of refining capacity, and about 90% of alloy and magnet production. BMI also pointed out Europe’s vulnerability, as the region imports 98% of its rare earth magnets from China, raising concerns about supply security.

“It just puts stress on a system that’s highly organized, with parts being ordered many weeks in advance,” said Sherry House, CFO, Ford, at an investor conference. Mercedes-Benz production chief Joerg Burzer stated that while the company has not yet been impacted, it is working with suppliers to build stockpiles.

BMW reported disruptions within its supply network but confirmed that its plants remain operational. German automotive supplier ZF Friedrichshafen said it has largely secured the necessary permits from Chinese authorities. While BMW’s latest EVs feature magnet-free motors, rare earths are still required for auxiliary systems like wipers and window mechanisms.

Manufacturers in Germany, the United States, and India have expressed concerns over the tightening export policies, citing growing threats to production continuity. While some US automakers are exploring alternatives, analysts warn that moving away from Chinese supply entirely will be challenging in the short term due to the country’s dominant position in rare earth processing and manufacturing.