China’s decision to tighten its control over rare earth exports is causing serious problems for Europe’s auto industry. Factories are already shutting down, and companies are warning that the worst could be yet to come. As European automakers push forward with electric vehicles (EVs), they are facing a dangerous reality: they depend on China for critical materials.

China’s New Licensing Rules

Earlier this year, China introduced new export controls on rare earth elements and magnets. Instead of a total ban, China put in place a new licensing system. Companies that want to buy rare earth magnets from China must apply for a license, provide a large amount of information, and then wait to see if they are approved. According to CLEPA, the European Association of Automotive Suppliers, only about 25 percent of these requests have been approved so far.

Bosch, one of the world’s biggest car parts suppliers, described the licensing process as “complex and time-consuming, partly due to the need to collect and provide a lot of information.” This slow approval process has led to serious delays for companies trying to get the materials they need.

Rare Earths and Europe’s Car Industry

Rare earth magnets are used in many parts of cars, including power steering systems, sensors, speakers, seat belts, and automatic transmissions. They are also very important for the electric motors in EVs. European automakers have been given strict targets for building and selling more electric cars in the next few years, which makes them even more dependent on rare earth magnets.

Hildegard Mueller, president of the German Association of the Automotive Industry, warned that “if the situation is not changed quickly, production delays and even production outages can no longer be ruled out.” She added that China has issued some permits to suppliers for Volkswagen, but “not enough to ensure the adequate supply of components needed to allow smooth production.”

The Impact on Production

The impact of these export restrictions is already being felt. CLEPA said that some European car part manufacturers have already shut down production lines. Benjamin Krieger, secretary general of CLEPA, said, “With a deeply intertwined global supply chain, China’s export restrictions are already shutting down production in Europe’s supplier sector.” He called on both the EU and China to “engage in a constructive dialogue to ensure the licensing process is transparent, proportionate, and aligned with international norms.”

In the United States, Ford had to shut down production of its Explorer SUV for a week in May because of rare earth shortages. Suzuki Motor in Japan stopped making its popular Swift car for a few weeks for the same reason. In Europe, BMW said that part of its supplier network had been affected, but its own plants were still running normally. Mercedes-Benz said it was “evaluating and monitoring the situation very closely” and was talking to suppliers about building up stockpiles.

China’s dominance in rare earth processing is nearly complete. It controls about 90 percent of global capacity. “China controls practically 99.8 percent of global production of heavy rare earths,” said Andreas Kroll, managing director of Noble Elements, a rare earths importer. He added, “Other countries can only produce these in minimal quantities, virtually on a laboratory scale.”

Sherry House, Ford’s finance chief, said at an investor conference that China’s restrictions “just put stress on a system that’s highly organized with parts being ordered many weeks in advance.” She said Ford was managing the situation, but “it continues to be an issue, and we continue to work the issues.”

Mathias Miedreich, a board member at ZF Friedrichshafen, a major German car parts supplier, said that while they had mostly gotten the permits they needed, he feared the situation could turn into another crisis like the chip shortage during COVID-19, which caused massive production losses for automakers.

Europe’s Growing Worries

The European Union is trying to fix the situation. European Trade Commissioner Maroš Šefčovič said, “I informed my Chinese counterpart about the alarming situation in the EU car industry — the rare earth and permanent magnets are essential for industrial production… this is extremely disruptive for industry.” He added that “carmakers are warning of huge production difficulties in a short period of time.”

EU Commissioner for Industrial Strategy Stéphane Séjourné said, “The export curbs increase our will to diversify” and find new sources of rare earths outside of China. The EU has announced 13 new projects in other countries, including the UK, to secure supplies of critical materials by 2030.

Maximilian Butek, executive director of the German Chamber of Commerce in China, said he thought China was not trying to hurt European companies on purpose. “I believe that it’s just a bureaucratic monster they [Beijing] created,” he said. He noted that thousands of applications for licenses have probably overwhelmed China’s commerce ministry. “I really don’t think that they would strike this sector now,” he said.

Many in Europe see this crisis as proof that Europe needs to reduce its dependence on China. Jens Eskelund, president of the EU Chamber of Commerce in China, said the rare earth restrictions are “proving the point” for those calling to “de-risk” supply chains. Abigaël Vasselier, of the German think tank Merics, warned that “we are now talking about job losses across Europe.”

China’s foreign ministry said the controls “are in line with international practices” and are not aimed at any particular country. Lin Jian, a spokesperson for the ministry, said, “We are willing to strengthen dialogue and cooperation with relevant countries and regions in the field of export controls and are committed to maintaining the stability of global production and supply chains.”

For now, there are no quick solutions. While some automakers are working on electric motors that don’t need rare earth magnets, these alternatives are still too expensive or too limited to fully replace the Chinese supply. As the situation drags on, Europe’s carmakers are finding themselves in a race against time.

ACZ Editor: Relying on China and not fostering alternate sources is only one of Europe’s grave mistakes. The other is their uncertain energy supplies and the loss of plants without replacing them properly. Europes industry will continue to decline.