China’s decision to restrict exports of rare earth elements and magnets is threatening to halt vehicle and auto parts production in the coming weeks.
These materials are critical to a wide range of automotive components—from electric motors and sensors to automatic transmissions, speakers, and safety systems. The global auto industry is heavily reliant on China for both the raw rare earth elements and the magnets made from them. Since China imposed new export controls in April, securing these materials has become increasingly difficult.
The move comes at a challenging time for automakers, already grappling with trade tariffs. If the situation worsens, the rare-earth shortage could become the third major supply chain crisis of the decade—following the COVID-19 pandemic and the global semiconductor shortage, which led to the loss of over 17 million vehicles from production schedules between 2021 and 2023.
Rare earths are a group of 17 heavy metals used in high-tech applications due to their unique magnetic and heat-resistant properties. They’re essential not only to automotive manufacturing but also to sectors like electronics, aerospace, energy, semiconductors, and defense.
Rare-earth magnets play a crucial role in modern vehicles—especially EVs and hybrids, which depend on them for electric motor function. But internal combustion vehicles also rely on rare earths in components such as transmissions, alternators, throttle bodies, sensors, speakers, and power steering.
On April 4, China began requiring special export licenses for seven types of rare earths: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. The move was part of Beijing’s retaliation for the U.S. raising tariffs on Chinese imports. While the U.S. and China reached a temporary truce in May, agreeing to reduce some tariffs for 90 days, rare-earth export licenses from China have remained slow and unpredictable. Reports indicate China has granted some temporary licenses to supply materials to U.S. automakers, but quantities and specifics remain unclear.
China dominates the rare-earth market, accounting for 65% of global mining and 88% of refining. For certain metals used in EV magnets, like terbium, China processes nearly 100% of the world’s supply. Although other nations, including the U.S., aim to develop their own rare-earth production, building that capacity will take years.
The auto industry is already feeling the effects. Ford shut down its Chicago assembly plant for a week in May due to a shortage of rare-earth-based brake components. In Europe, several suppliers have also suspended operations.
Automakers and suppliers are scrambling to adapt. Some are considering shifting parts production to China, since fully assembled components are not covered by the new export restrictions—even though they’re still subject to tariffs. Others are looking to redesign components without rare-earth magnets, but doing so could compromise performance and requires extensive validation and testing.
