Add “rare earth minerals” to the list of suddenly inescapable terms, alongside “tariffs,” “uncertainty,” and “chaos.”
That’s because in April, China made these materials subject to export controls in response to new tariffs implemented by the US. Cue panic in the auto industry, which needs rare earth minerals for myriad vital components, from electric motors for EVs and oil pumps to catalytic converters and windshield wipers—and which is almost entirely reliant on China to supply them.
China controls nearly 60% of rare earths mining and nearly 90% of the processing capacity in the world, according to AlixPartners.
“It’s integral to the production of the vehicle,” C.J. Finn, PwC’s US automotive industry leader, told Tech Brew. “The OEMs and the suppliers [are] all very much looking at identifying what alternatives may be available to them.”
But even as the industry looks for near-term solutions to avoid production stoppages, experts say that a long-term fix may be tricky—and largely dependent on politics.
“There’s really no getting away from China in the near term,” Mark Wakefield, global automotive market lead at AlixPartners, said. “Really there has to be a political solution.”
Restricted
Chinese export restrictions apply to seven rare earth elements (gadolinium, yttrium, and five other elements that end in -ium) and rare earth magnets. Companies that want to export the minerals must apply for licenses, a process that is reportedly slow, complicated, and controlled by a small group of Chinese bureaucrats.
“The application process for export permits for various rare earths by our suppliers, which has been in place since April, is complex and time-consuming—partly due to the collection and provision of a large amount of data,” automotive supplier Bosch said in a statement.
Some of the industries most susceptible to supply chain disruptions due to the restrictions include automotive, consumer electronics, and medical devices, according to an analysis by supply chain risk management software company Everstream Analytics.
Auto industry stakeholders in the US and Europe have been sounding the alarm about looming production disruptions, though Everstream so far hasn’t seen signs of major stoppages.
Ford CEO Jim Farley recently told Bloomberg News that the automaker is struggling with rare earths, saying: “It’s day to day. We have had to shut down factories. It’s hand-to-mouth right now.”
That’s despite China granting temporary export licenses to the suppliers of the top US automakers, according to Reuters. Ford reportedly shuttered production at its Chicago Assembly Plant, which produces the Explorer SUV, for a week in May because of the issue.
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At a recent automotive tech conference in Michigan, executives at major suppliers, including Aptiv and ZF North America, acknowledged the seriousness of the issue and said they were focused on finding sourcing alternatives outside of China.
Jena Santoro, global lead of research and analytics at Everstream, told Tech Brew that leaders of the industries most affected by the export restrictions are likely awaiting details from recent US-China negotiations.
“All we know is that the two sides…reportedly reached an agreement…but the details were not disclosed of what that agreement entailed,” she said. “There was some ambiguous language that was shared, which is basically that China has agreed to ease the licensing requirements and expedite the licensing to some trusted US companies.”
Expediting license approvals, she said, should speed up a process that currently takes an average of 45 days.
“But we don’t know what, exactly, the new timeframe would be,” she added. “And then we don’t really know what ‘trusted US companies’ means to China, and who will be considered a trusted company or trusted industry and who will not.”
The long view
Auto companies are already exploring ways to source rare earth magnets outside of China and to develop components with less or no rare earth content. Efforts are also underway to establish processing capabilities elsewhere.
But experts say, given the long lead time on such projects, the world will remain reliant on China for rare earth mineral mining and refining for years to come partially due to where these elements naturally occur.
“While some countries have initiatives on the way to increase rare earth mining, refining as well as magnet production, setting up new rare earth supply chains outside of China is going to take time, leaving many companies exposed to further production disruptions for the foreseeable future,” per Everstream’s analysis.
AlixPartners estimates it would take three to five years to establish new refining capacity in other regions, even with strong governmental support.
And regardless of trade negotiations, Santoro said, the issue will remain a challenge because the export controls are expected to stay.
“Negotiations need to take place, and there needs to be some sort of concessions made by the US to entice China or coerce China to allow these exports to take place, because they really have a stronghold on the resources,” she said.