The Automotive Industry Fears a New Crisis Due to Rare Earths

After overcoming the pandemic, the semiconductor crisis, and the trade war between Europe, China, and the US, car brand executives are preparing for the next sector crisis, which is likely to be that of rare earths.

The extraction and distribution of these metals, essential for the magnets in autonomous car motors, are controlled in the international market by China, which has created a list of restrictions on selling them to other countries, claiming they could compromise international security.

According to Franck Eckard, CEO of Magnosphere, a German supplier of automotive magnets, "The entire automotive industry is in total panic, and they are willing to pay whatever it takes."

According to Reuters, the semiconductor crisis highlighted the weakness of logistical dependency and "just-in-time" systems, which avoid stockpiling more parts than absolutely necessary. This reduces costs but leaves manufacturers vulnerable to any unforeseen events.

Although brands vowed never to allow a similar situation to occur again, Eckard states that "no one has learned from the past."

US President Donald Trump said on June 6 that Chinese President Xi Jinping agreed to allow the flow of rare earth minerals and magnets to the United States.

This time, with the rare earth bottleneck tighter, the industry has few good options, given China's dominance in the market. The fate of automotive assembly lines is in the hands of a small group of Chinese bureaucrats reviewing hundreds of export permit applications.

Several European automotive supplier plants have already closed, and more closures are expected, according to the European Association of Automotive Suppliers, CLEPA. "Sooner or later, this will affect us all," said its Secretary General, Benjamin Krieger.

China controls up to 70% of the world's rare earth mining, 85% of refining capacity, and about 90% of rare earth alloy and magnet production, according to consultancy AlixPartners. An average electric vehicle uses about 0.5 kg (a little over a pound) of rare earth elements, and an internal combustion car uses half, according to the International Energy Agency.

China has taken similar measures before, such as in 2010 during a dispute with Japan, when it limited its rare earth exports.

Then, Japan was forced to seek alternative suppliers, and by 2018, China accounted for only 58% of its rare earth imports. "China has had the rare earth card to play whenever it wanted," said Mark Smith, CEO of mining company NioCorp, which is developing a rare earth project in Nebraska with production expected in three years.

Across the industry, car manufacturers have been trying to reduce their dependence on China for rare earth magnets and even develop magnets that do not require them. But most of these efforts are still far from reaching the necessary scale.

Manufacturers like General Motors and BMW, and key suppliers like ZF and BorgWarner, are developing motors with little or no rare earth content, but few have managed to scale production enough to reduce costs.

The EU has launched initiatives such as the Critical Raw Materials Act to increase European sources of rare earths. But progress has not been fast enough, stated Noah Barkin, senior advisor at the US-based Rhodium Group, specializing in China.