Global carmakers are facing a mounting crisis. China’s tightening grip on the export of rare earth materials begins to choke off essential supplies, which might lead to plant shutdowns and fuel fears of a broader disruption across the auto industry.
The supply chain strain, rooted in the export controls imposed by Beijing, is the latest flashpoint in a global trade environment facing increasing tension. China, which controls over 90% of global rare earth processing capacity, critical for manufacturing electric motors and a host of high-temperature components, has introduced a new licensing regime that has left European automotive suppliers scrambling. These licenses are a reaction to the tariff barriers imposed by the West.
“Already shutting down”
According to CLEPA, the European association of automotive suppliers, several production lines in Europe have already ground to a halt. The group’s secretary general, Benjamin Krieger, described the restrictions as a blow to the industry and said that “China’s export restrictions are already shutting down production in Europe’s supplier sector.”
Krieger called on both Brussels and Beijing to ensure a transparent and fair licensing system, warning that inaction would worsen the situation. Could this be a repeat of the chip shortage as we witnessed during the pandemic?
Only a quarter approved
In figures: Out of hundreds of export licence applications lodged with the authorities, only a quarter have reportedly been approved. Many firms are encountering inconsistent bureaucratic hurdles. Or worse, with some licences allegedly denied for procedural reasons or held up by demands for sensitive proprietary information.
In Germany, carmakers BMW and Mercedes-Benz say they are not yet facing direct plant stoppages, but admit that disruptions are beginning to ripple through their supply networks. Mercedes has been working to build buffer stocks, while BMW partly relies on a development head start: a rare-earth-free electric motor, the fifth-generation unit found in the iX, i4, i5, and i7. However, the company acknowledges that specific components, such as motors for windows and wipers, still rely heavily on the restricted materials.
Tariff gun backfiring
On the other side of the Atlantic, the consequences are equally severe. Reports in The Wall Street Journal suggest that some unnamed American automakers are contemplating shifting parts of their electric motor production to China to sidestep licensing requirements, an ironic reversal of the very trade dynamics that U.S. President Donald Trump has sought to rebalance. That would mean a backfiring tariff gun. Ford has already halted production of one model in the U.S., and further disruptions are likely.
Experts have warned of empty shelves roughly two months after China decided to implement the licenses in April. The European Commission has responded with urgency, identifying over a dozen critical mineral projects outside the bloc to reduce its reliance on China. But analysts further warn that diversifying supply chains takes time, and there is no short-term fix.
As mentioned, the crisis is drawing parallels with the semiconductor shortage that crippled global car production during the COVID-19 pandemic. Once again, a key industrial sector is discovering the risks of overreliance on a single supplier.
