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Global automakers worry China's rare-earths curb is next

global

supply crisis

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Auto industry efforts to find alternative magnet supplies

have

floundered

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Bottleneck has auto companies stockpiling, considering

workarounds

By Christina Amann, Nick Carey and Kalea Hall

BERLIN/LONDON/DETROIT, June 9 (Reuters) - Frank Eckard,

CEO of a German magnet maker, has been fielding a flood of calls

in recent weeks. Exasperated automakers 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 once 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. U.S. President Donald Trump said Friday that

Chinese President Xi Jinping agreed to let rare earths minerals

and magnets flow to the United States. A U.S. trade team

is scheduled to meet Chinese counterparts for talks in London on

Monday.

The industry worries that 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

automakers' production plans, from roughly 2021 to 2023. Before

that, the coronavirus pandemic in 2020 shut factories for weeks.

Those crises prompted the industry to fortify supply chain

strategies. Executives have prioritized 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 automakers' assembly lines has

been left to a small team of Chinese bureaucrats as it reviews

hundreds of applications for export permits.

Several European auto-supplier plants have already 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 today 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 .5 kg (just over 1 pound) of

rare earths elements, and a fossil-fuel car uses just 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, automakers have been

trying to wean off China for rare-earth magnets, or even develop

magnets that do not need those elements. But most efforts are

years away from the scale needed.

"It's really about identifying ... and finding alternative

solutions" outside China, Joseph Palmieri, head of supply chain

management at supplier Aptiv ( APTV ), said at a conference in

Detroit last week.

Automakers including General Motors ( GM ) and BMW

and major suppliers such as ZF and BorgWarner ( BWA )

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. But it has

not moved fast enough, said Noah Barkin, a senior advisor at

Rhodium Group, a China-focused U.S. 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 $250 million from investors

including GM, Stellantis ( STLA ) and auto 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 $1 billion 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 automakers, although the speakers are

not expected to be available in mainstream models for about five

years.

As auto companies scout longer-term solutions, they are left

scrambling to avert imminent factory shutdowns.

Automakers 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 automakers to make

cars without certain parts and park them until they become

available, as GM and others did during the semiconductor crisis.

Automakers' 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 aluminum.

Andy Leyland, co-founder of supply chain specialist SC

Insights, said any of those elements could be used as leverage

by China. "This just is a warning shot," he said.