China has spent several years trying to corner much of the global market for minerals and materials used in high-tech and manufacturing industries. It has been a point of concern for many of the world’s car makers for some time that China is all but a monopoly when it comes to the supply and refinement of the likes of lithium, crucial for electric car batteries.
Now, that dominance is being asserted as China has, up to a point, turned off the tap when it comes to the supply of rare-earth metals, many of which are crucial to the making of combustion-engined and hybrid cars as well as electric vehicles (EVs). So tight has supply now become that Japanese car maker Suzuki has said it will pause production of its popular Swift small car until supply restrictions ease.
CLEPA, the organisation that represents Europe’s car component and parts suppliers, has said the restrictions in rare-earth metals, such as dysprosium, represent a significant threat. In a statement, CLEPA’s secretary general Benjamin Krieger said: “With a deeply intertwined global supply chain, China’s export restrictions are already shutting down production in the European supplier sector.”
Could this lead to another crunch in car production, similar to that seen in 2021 and 2022 when Covid restrictions and a global shortage of microchips sent the car industry into a spiral? It may well do. The VDA, the German umbrella organisation that represents that country’s car industry, has warned that China’s restrictions could cause car factories to “grind to a halt”.
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Speaking to CNBC, VDA president Hildegard Muller said: “The Chinese export restrictions on rare earths are a serious challenge for the security of supply, and not just in the automotive supply chains. Although some licences have now been granted, this is currently not enough to ensure smooth production. A further problem arises from the slow clearance of exports for which a valid export licence has been granted. If the situation does not change quickly, production delays and even production stoppages can no longer be ruled out.”
The situation became serious enough in May that it broke down the corporate rivalry between General Motors, Toyota, Hyundai and Volkswagen sufficiently that those companies came together to form a lobbying group called the Alliance For Automotive Innovation, which wrote an open letter to the US government. It said: “Without reliable access to these elements and magnets, automotive suppliers will be unable to produce critical automotive components, including automatic transmissions, throttle bodies, alternators, various motors, sensors, seat belts, speakers, lights, motors, power steering and cameras.”
Previously, the world’s car makers were criticised for not acting swiftly enough to shore up the supply of microchips when the supply of that technology became severely restricted.
Tech companies such as Apple and Samsung saw the problem coming over the horizon much sooner and acted to bulk up on inventory This left many car makers out in the cold and forced to cut or even stop production, or to build cars with fewer high-tech features.
There seemed to have been a thaw in recent months, as both China and the EU sought to work together to circumvent the so-called Trump tariffs
It’s not just high-tech features which are affected by this shortage, however. While batteries and touchscreens certainly use their share of rare-earth metals, you’ll also find them – including the likes of platinum, palladium, and rhodium – in catalytic converters, oil pumps, stereo speakers and windscreen wiper mechanisms.
There’s another significant difference this time around. Whereas the semiconductor microchip shortage affected the whole world, this time China appears to be specifically targeting not only car makers, but other industries which rely on the supplies of these materials, possibly in an effort to increase the export success of its own companies.
It marks yet another step change in the relationship between the EU and China’s car makers. That relationship had become exceptionally frosty in the wake of the EU imposing stiff tariffs on China’s electric cars, amid claims and counter-claims of state subsidies and low-cost “dumping”.
There seemed to have been a thaw in recent months, as both China and the EU sought to work together to circumvent the so-called Trump tariffs, but this rare-earth restriction could indicate a new phase of China’s expansionist industrial policy.
The likes of BYD and MG (the latter long since owned by China’s Shanghai Automotive Industrial Corporation) are looking to duck around European tariffs both by building factories in the EU and Turkey (BYD’s Hungarian factory begins producing its first cars later this year) as well as ramping up the numbers of plug-in hybrid cars – which are not affected by tariffs – that they sell.
BYD, in particular, has announced major ambitions for European sales, including plans to become the biggest-selling brand in the UK and elsewhere. It’s backed up those ambitions by taking advantage of stumbling Tesla sales, picking up customers disgruntled by Elon Musk’s controversial public and political actions.
BYD’s vice-president, Stella Li, has previously said she wants the company to effectively become a European car maker, with more than one factory in Europe, “putting jobs and investment into the community”.
China’s move to restrict exports is also a form of response to the inconsistent trading policies of the current Trump administration
That may be of cold comfort to those currently employed by rival car makers who now can’t access the supplies and materials they need, especially if it turns out that rather than the restrictions being merely the result of sclerotic bureaucracy, China is weaponising the supply chain specifically to damage rival economies and companies.
Both Nissan and BMW have said they can foresee production restrictions if the tightness of supply continues, although both Volkswagen and Mercedes have said they have plans in place to source materials from other countries.
With China having a 60 per cent chokehold on the world’s supply of rare-earth metals, that may prove easier said than done. Mercedes has pointed out that it is working on new designs, especially electric motors developed by its UK-based subsidiary YASA, that use far fewer rare-earth metals, and in some cases which don’t use any at all.
China’s move to restrict exports is also a form of response to the inconsistent trading policies of the current Trump administration in the US, and is effectively a form of leverage against higher tariffs. Reuters reports that the “big three” US car makers – General Motors, Ford and Stellantis Group (a European-based conglomerate, but it owns Chrysler, Dodge, Jeep, and Ram commercial vehicles) – had all been granted export licences for some rare Earth metals.
It remains to be seen if these new export agreements will allow Ford to restart production of its Explorer SUV (the large US-market car, not the compact all-electric European model of the same name, which is made in Cologne), which had been paused.
