Rare-earths shortage causes panic among auto companies

Frank Eckard is the CEO of a German manufacturer of magnets. He has received a lot of calls over the past few weeks. Automakers and suppliers are desperate to find other sources of magnets due to the Chinese export restrictions.

Eckard was told by some that their factories would be shut down without backup magnets as early as mid-July. Eckard, CEO at Magnosphere in Troisdorf in Germany, said that the entire car industry was in a panic. "They will pay anything."

Car executives are once again crammed into war rooms because they fear that China's strict export controls on rare earth magnets, which are crucial to the production of cars, could cripple production. Donald Trump, the U.S. president, said on Friday that Chinese President Xi Jinping had agreed to allow rare earth minerals and magnets to flow into the United States. On Monday, a U.S. team of trade representatives will meet with Chinese counterparts in London for discussions.

Industry experts are concerned that the situation with rare earths could lead to a third major supply chain shock within five years. From roughly 2021-2023, a semiconductor shortage caused automakers to cancel millions of vehicles from their production plans. The coronavirus epidemic in 2020 also shut down factories for several weeks.

These crises led the industry to strengthen its supply chain strategies. The industry has prioritized backups for key components, and re-examined just-in time inventories that save money, but may leave them with no stockpiles if a crisis occurs.

Eckard said that judging by the inbound calls he receives, "nobody's learned anything from their past."

The industry is left with few options this time as the bottleneck for rare earths tightens. This is due to the dominance of China on the market. A small team of Chinese bureaucrats is deciding the fate of automakers’ assembly lines as they review hundreds of export permit applications.

CLEPA, the auto supplier association for Europe, has reported that several European auto-supplier factories have shut down and more are expected to do so.

Benjamin Krieger, Secretary General of CLEPA, said: "This will be a problem for everyone sooner or later."

Rare-earth-based motors are used in dozens components of cars today - including side mirrors and stereo speakers. They also power oil pumps, wipers and sensors that detect fuel leaks and brake sensors.

AlixPartners, a consultancy, said that China controls 70% of the global rare-earths mines, 85% refining capacity, and 90% of rare earths magnets and metal alloys. According to the International Energy Agency, an average electric car uses.5 kg of rare earth elements. A fossil-fuel vehicle uses only half as much.

China has acted in the past, such as during a dispute with Japan in 2010, when it curbed exports of rare-earths. Japan was forced to look for alternative suppliers and, by 2018, China only accounted 58% of Japan's rare earth imports. Mark Smith, CEO at mining company NioCorp which is developing an rare-earth mine in Nebraska, said that China could play the rare-earth cards whenever it wanted. Automakers across the industry have tried to reduce their reliance on China for rare earth magnets or develop magnets without these elements. Most efforts, however, are still years away from reaching the necessary scale.

Joseph Palmieri said, "It is really about identifying... and finding alternatives" outside China at a Detroit conference last week. Palmieri is the head of supply-chain management at Aptiv.

GM, BMW, ZF, and BorgWarner and other major automakers are developing motors that contain low to zero rare-earth metals. However few have been able to scale up production to reduce costs.

The EU launched initiatives, including the Critical Raw Materials Act, to boost European sources of rare-earth metals. Noah Barkin is a senior adviser at Rhodium Group in the United States, an organization that focuses on China. He said it had not moved quickly enough.

Even those who have created marketable products find it difficult to compete on price with Chinese producers. David Bender, cohead of German metal specialists Heraeus magnet recycling business, stated that it was only operating at 1% capability and would have to close if sales did not increase next year.

Niron, a Minneapolis-based company that has developed rare-earth-free magnets, has raised over $250 million in funding from investors such as GM Stellantis Magna and other auto suppliers.

Jonathan Rowntree, CEO of Rowntree International Ltd., said that since China's new export controls came into effect "we've seen an increase in interest" from both investors and customers. The company plans to build a $1 billion facility that will begin production in 2029.

Warwick Acoustics, based in England, has developed speakers that are free of rare earths. They will be used on a luxury vehicle later this year. Mike Grant, CEO of Warwick Acoustics, said that the company is in discussions with a dozen other automakers. However the speakers will not be available on mainstream models until about five years.

Auto companies are scrambling as they search for longer-term solutions to avoid imminent factory closures. Automakers need to determine which suppliers, and even smaller ones just a few links above the supply chain, require export permits. Mercedes-Benz is, for instance, talking to its suppliers about building up rare-earth stocks.

Analysts say that the shortage of parts could force automakers, like GM and other manufacturers during the semiconductor crisis, to build cars without certain components and store them until the parts are available.

The automakers' dependence on China is not limited to rare earth elements. In a report from the European Commission, published in 2024, China controlled more than half of the global supply of 19 raw materials including manganese graphite, and aluminum.

Andy Leyland is the co-founder and supply chain expert SC Insights. He said that any of these elements could be leveraged by China. He said, "This is just a warning shot."

(source: Reuters)