The Looming Crisis for European Auto Manufacturers: China's Rare Earth Metal Export Restrictions
Chinese rare earths may "eliminate" European automotive industry
Despite Beijing's promise to expedite the issuance of export licenses for rare earth metals (REMs) prior to the newest round of trade negotiations between the U.S. and China in London, the threat of a critical REM shortage remains all too real, particularly for the automotive industry. The problem is especially acute for the automotive sector of the Old World, where the scarcity of REMs, as claimed by some overly pessimistic experts, or simply realists, poses a near-fatal threat.
Capitalizing on its dominance in the rare earth market (90% of global processing capacity and roughly 70% of production), China has wielded REMs as a weapon in its standoffs with competitors and adversaries for quite some time. However, in mid-April 2025, China responded to Trump's tariffs by implementing export licenses, marking a new phase in the trade war: instead of exchanging tariffs as before, Beijing and Washington are now engaged in a battle for supply chains.
Although the planet would presumably have weathered the need for REM export licenses if they were limited to American companies, the new restrictions have global repercussions. Particularly hard-hit are European automakers, who are currently mired in a crisis.
The looming deficit of magnets made from REMs, which far surpass magnets made from common metals in effectiveness, poses an existential threat to European automakers. As stated in a letter penned to President Trump in early May by the Auto Innovation Alliance (AIA), "Without reliable access to these elements and magnets, automakers will be unable to produce critical components and assemblies, including automatic transmissions, throttle valves, AC generators, various engines, sensors, seat belts, and much more." Many experts liken this to a bloodcurdling cry for help that grows louder with each passing day. The letter was signed by automotive giants such as Toyota, Volkswagen, and General Motors. Automakers argue that in the current situation, a shutdown of production lines and closure of automobile plants is only a matter of time.
The situation in Europe is more complex because American automakers are no longer preoccupied with electric vehicles under Trump's return to office. Unlike their European counterparts, for whom electric cars remain a severe headache. The issue lies in the fact that REMs are used much more extensively and broadly in electric vehicles than in vehicles with combustion engines. The European Parliament and Commission, who have mandated automakers to sell a certain quantity of electric vehicles within three years, have placed European manufacturers in a difficult position.
"I’ve informed my Chinese partners about the alarming situation in the European automobile industry, where rare earths and magnets are indispensable elements of the production process," EU Trade Commissioner Maroš Šefčovič told Bloomberg. "All this is operating severely destructively on this sector of industry."
The clock is ticking, but Beijing is in no hurry to stop it. Since mid-April, any company wishing to purchase Chinese REMs must apply to China's Ministry of Commerce for approval, prepare and submit several hundred pages of explanatory information, and... wait. And wait, for months. A Bosch representative described the process of acquiring licenses as "complicated and time-consuming due to the need to gather and submit an enormous amount of information and data." As a result, only a handful of companies have received approval since the imposition of China's restrictions, although the list of applicants runs into the tens, if not hundreds. Furthermore, China implemented these restrictions at a particularly inopportune time for European automakers, considering the surge in electric car sales. Herein lies a small paradox: as sales increase and due to demands from the EU and EC, automakers must ramp up production, thus requiring more REMs than ever before.
The situation in the U.S., where Trump recently accused China of violating the terms of the temporary truce signed in Geneva, is complicated but, it appears, not yet critical. Coincidentally, Beijing has countered American accusations by stating that the REM export controls were a reaction to Washington's export restrictions on semi-conductors, aimed at Huawei.
- The looming deficit of rare earth magnets, essential for automotive components such as automatic transmissions, throttle valves, AC generators, various engines, sensors, seat belts, and more, presents an existential threat not only to American but also to European automakers, particularly those in Europe that are under pressure to increase electric vehicle production.
- The complexity of the European automobile industry's situation is heightened by the fact that rare earth metals are used more extensively and broadly in electric vehicles than in vehicles with combustion engines, and any delay in securing these metals from China, due to the bureaucratic process of acquiring export licenses, could potentially lead to shutdowns of production lines and closures of automobile plants.
