The global automotive industry is facing mounting strain due to new rare earth export restrictions imposed by Mainland China, according to a report by BMI, a Fitch Solutions company. The introduction of a licensing system has caused significant delays in the shipment of magnets, essential components in electric vehicle (EV) motors and modern vehicle subsystems. This delay poses a risk of production halts for major automakers, putting a strain on the industry.
These restrictions come in response to increased US tariffs on Chinese goods, prompting the EU to urge Beijing to ease its controls. The delays in magnet supply threaten to disrupt global vehicle production forecasts, with BMI predicting a 2.3% rise in 2025 to 95.8 million units, following a slight contraction in 2024.
The impact of these restrictions is particularly felt in the electric vehicle sector, as EV production relies heavily on rare earth magnets compared to internal combustion engine vehicles. Europe’s auto sector is especially vulnerable, as 98% of its rare earth magnets are imported from China, which dominates global processing capacity.
While the EU has introduced the Critical Raw Materials Act to enhance domestic processing capacity, European processing still lacks cost competitiveness and scale, making the region heavily reliant on Chinese suppliers. As the crisis unfolds, BMI anticipates changes in sourcing strategies, including potential production relocations to China despite tariff implications and a reduction in non-essential vehicle features to lessen reliance on rare earths.
Some automakers may also consider reverting to older EV motor designs that require fewer critical minerals. The current disruption highlights the fragility of automotive supply chains in the face of strategic material bottlenecks, especially as global electrification efforts intensify.
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Overall, the automotive industry is facing challenges due to rare earth export restrictions, highlighting the need for strategic planning and resilience in supply chains as the industry moves towards electrification.
