China’s Rare Earth Clampdown Threatens Global EV Supply Chain

China’s tightening grip on rare earth mineral exports, critical components in electric vehicles, could ignite another major disruption in the global automotive industry, according to a report from consultants BMI.

But Western manufacturers will take some comfort from the knowledge that China’s huge auto overcapacity means it will be anxious for exports to continue without too much interruption.

“Global automotive production lines are at risk of coming to a standstill and experiencing delays due to a new licensing system introduced by Mainland China which is slowing deliveries of rare earth exports and causing significant delays in magnet deliveries,” said BMI, a Fitch Solutions company, said.

Rare earth magnets are crucial for EV motors and various automotive systems for sensors, power steering, regenerative braking and other advanced features in modern vehicles, including premium combustion vehicles.

China controls up to 70% of global rare-earth mining, 85% of refining capacity and about 90% of rare-earth metal alloy and magnet production, says consultants AlixPartners. BMI said Europe’s susceptibility is “quite pronounced” and it imports 98% of its rare earth magnets from China.

The report coincided with unconfirmed Reuters reports out of Beijing and Washington that some temporary export licenses to rare earth suppliers had been granted to some U.S. automakers. This sudden threat to rare-earth supplies is part of the spat between China and the U.S. as President Donald Trump tries to negotiate new tariffs with the rest of the world.

^{Another existential crisis?}

Investors worry that this will become another existential crisis to hit global automakers in the last five years. The Corona Pandemic closed the industry for months, then the semiconductor shortage struck. After surviving these shocks, investors had been led to believe lessons had been learned and supplies of crucial components were being stockpiled to insure against similar setbacks.

According to Frank Eckard, CEO of German magnet maker Magnosphere, this hasn’t happened, and many factory shutdowns are expected if the crisis isn’t resolved.

“The whole car industry is in full panic,” Eckard told Reuters.

BMI said EVs are particularly vulnerable.

“We anticipate EV production to be disproportionately affected, as EVs require significantly more rare earth magnets than internal combustion engine vehicles,” BMI said.

BMI said manufacturers may have to shift some production to China to bypass the bottleneck.

“Some manufacturers might revert to older EV motor technology that relies less on rare earth magnets. Furthermore. We believe production lines could be modified by eliminating certain premium non-critical features that require small electric motors with rare earth magnets. These include adjustable seats, steering wheel adjustment systems and electric sunshades,” BMI said.

BMW motors don’t use rare earths

Investment bank UBS pointed out that BMW is the only German manufacturer that makes electric motors without rare earths, which are typically used in permanent magnet motors.

“However, rare earths are also used in other electronics parts, therefore any impact of potential shortages would not be limited to EVs. We think the situation requires close monitoring in the coming days and weeks,” UBS said in a research note.

BMI said it may have to cut its forecast for global vehicle production if the dispute remains unresolved.

“This concern is underscored by warnings from various automakers that existing stockpiles will only last a few weeks. We currently forecast global vehicle manufacturing to grow by 2.3% in 2025, reaching 95.8 million, a recovery from a 0.2% decline recorded in 2024,” BMI said.

Some observers assume that because of the huge leverage China holds over rare earths it holds all the aces in its talks with the U.S.

Professor Stefan Bratzel, director of the Center of Automotive Management, recently pointed that China’s auto industry has “massive overcapacity”.

China has become the world’s largest exporter of sedans and SUVs, with more than 4 million exports annually.

“The Chinese car market is marked by significant overproduction, driven by a proliferation of brands and state-supported industrial expansion. With domestic demand stagnating, exports are becoming a strategic necessity to absorb production volumes and mitigate effects of internal price erosion,” Bratzel said.

That suggests China will be anxious to quickly clear any obstacles to exports.