A shortage of rare earth magnets caused by limited Chinese exports has potential to disrupt global supply chains

More rigorous export restrictions on rare earth magnets imposed by China during its tariff conflict with the US have resulted in global stockpiles of the key automotive component being depleted.  

This has prompted concerns from OEMs, with fears that a shortage will lead to reduced production volumes or shutdowns, like during the semiconductor shortage several years ago. 

According to Bloomberg, China currently accounts for 70% of rare earth minerals mined and produced, playing a crucial role in the supply of rare earth magnets to the market. Since April, regulatory changes mean that exporters now require government-approved licenses to export rare earth magnets, however these licences appear difficult for OEMs and their suppliers to access – a spokesperson from Robert Bosch commented that the applications are “complex and time-consuming, partly due to the need to collect and provide a lot of information.”  

Trade bodies representing US automakers – including the Alliance for Automotive Innovation, MEMA, and The Vehicle Suppliers Association – have shared their concerns. In a public letter to the Trump administration, the bodies described how US automotive production will begin to falter “without reliable access to these elements and magnets.” The bodies – whose members include GM, Toyota, Volkswagen Group, Hyundai and more – fear that a continued bottleneck could deplete supply to such an extent that it will result in “reduced production volumes or even a shutdown of vehicle assembly lines.” 

The shortage is already starting to take its toll in other markets. The European Association of Automotive Suppliers (CLEPA) has said that “several production lines and plants” across Europe have halted production as stockpiles of the magnets finish and warns of further disruption over the coming weeks as the shortage worsens. Benjamin Krieger, secretary general of CLEPA, alluded to how severe the shortage could be, pointing to the “deeply intertwined global supply chain” between China and the EU as being a cause for concern – of the hundreds of export requests shared by European OEMs, only “one-quarter” have been approved so far.  

He also described the speed required to limit the shortage, saying that that authorities should act “urgently” to “engage in a constructive dialogue to ensure the licensing process is transparent, proportionate, and aligned with international norms.” 

While CLEPA does not indicate which OEMs are affected, Reuters has reported that Suzuki has had to pause Swift production at its Sagara, India plant due to component shortages. Sources close to the matter indicated to Reuters that the components in question were rare earth magnets, although this hasn’t been confirmed by the company.  

BMI – A Fitch Solutions Company has reviewed its automotive outlook for the year, commenting that the shortage “pose[s] significant downside risks” to production forecasts, especially for EVs. It also pointed to this being indicative of the ”significant vulnerability of global automotive supply chains to bottlenecks,” and recommended OEMs to “reconsider their sourcing strategies”  – including a suggestion of partially relocating production to China to avoid the export issues.