Car companies ‘in full panic’ over rare earths bottleneck

Frank Eckard, CEO of a German magnet maker, has been fielding a flood of calls in recent weeks. Exasperated carmakers 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 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 on Friday that Chinese President Xi Jinping agreed to let rare earths minerals and magnets flow to the US. A US trade team is scheduled to meet Chinese counterparts for talks in London on Monday.

The industry is worried 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 carmakers' production plans, from about 2021 to 2023. Before that, the coronavirus pandemic in 2020 shut factories for weeks.

The crises prompted the industry to fortify supply chain strategies. Executives have prioritised backup supplies for key components and reexamined 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 carmakers' assembly lines has been left to a small team of Chinese bureaucrats as it reviews hundreds of applications for export permits.

Several European car supplier plants have shut down, with more outages coming, said the region's auto supplier association, Clepa.

"Sooner or later this will confront everyone," said Clepa secretary-general Benjamin Krieger.

Cars 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 0.5kg of rare earths elements, and a fossil-fuel car uses 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, carmakers have been trying to wean off China for rare earth magnets, or develop magnets that do not need the elements, but most efforts are years away from the scale needed.

"It's about identifying and finding alternative solutions" outside China, Joseph Palmieri, head of supply chain management at supplier Aptiv, said at a conference in Detroit last week.

Carmakers including General Motors and BMW and major suppliers such as ZF and BorgWarner are working on motors with low to zero rare earth content, but few have managed to scale production enough to cut costs.

The EU has launched initiatives including the Critical Raw Materials Act to boost European rare earth sources. However, it has not moved fast enough, said Noah Barkin, a senior adviser at Rhodium Group, a China-focused US think tank.

Even players that have developed marketable products struggle to compete with Chinese producers on price. David Bender, co-head of German metal specialist Heraeus' magnet recycling business, said it is only operating at 1% capacity and will have to close next year if sales do not increase.

Minneapolis-based Niron has developed rare earth free magnets and has raised more than $250m (R4,442,200,000) from investors including GM, Stellantis and car supplier Magna.

"We've seen a step change in interest from investors and customers" since China's export controls took effect, CEO Jonathan Rowntree said. It is planning a $1bn (R17,768,800,000) plant scheduled to start production in 2029.

England-based Warwick Acoustics has developed rare earth-free speakers expected to appear in a luxury car later this year. CEO Mike Grant said the company has been in talks with another dozen carmakers, though the speakers are not expected to be available in mainstream models for about five years.

As car companies scout longer-term solutions, they are left scrambling to avert imminent factory shutdowns. Carmakers must figure out which of their suppliers – and smaller ones a few links up the supply chain – need export permits. Mercedes-Benz, for example, is talking to suppliers about building rare earth stockpiles.

Analysts said the constraints could force carmakers to make cars without certain parts and park them until they become available, as GM and others did during the semiconductor crisis.

Carmakers' 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 aluminium.

Andy Leyland, co-founder of supply chain specialist SC Insights, said any of the elements could be used as leverage by China.

"This is a warning shot," he said.