Global autos industry under strain amid China export restrictions – BMI

Latest Development: Global automotive production lines are at risk of coming to a standstill and experiencing delays due to a new licensing system introduced by Mainland China which is slowing deliveries of rare earth exports and causing significant delays in magnet deliveries. This has led the EU to urge China to ease restrictions on rare earth exports. The introduction of China’s new licensing system followed US President Trump’s announcement of higher tariffs on Chinese products. Rare earth magnets are crucial components in electric vehicle (EV) motors and various subassemblies across modern vehicles.

Forecast Implications: We highlight that the supply issues concerning rare earth magnets pose significant downside risks to our near-term global vehicle production forecasts, given the critical role these components play in automotive systems such as electric motors, sensors, power steering, and regenerative braking systems, among other advanced features in modern vehicles. This is showcased by recent statements from automakers highlighting disruptions in their supply chains. For example, Ford temporarily halted operations at its Chicago SUV plant, Suzuki suspended production of its Swift model, and Germany’s VDA automotive industry group warned that production lines could be disrupted or even halted due to delays in deliveries of components that use magnets.

Furthermore, we anticipate EV production to be disproportionately affected, as EVs require significantly more rare earth magnets than internal combustion engine (ICE) vehicles. Also, the growing trend of vehicle fleet electrification (see chart below) is leading automakers to increasingly depend on rare earth magnets and other components that use critical minerals in their manufacturing processes. Consequently, risks to our global vehicle production forecasts for passenger vehicles and commercial vehicles are skewed to the downside in the near term, and we will be compelled to revise our forecasts downward should supply issues remain unresolved. This concern is underscored by warnings from various automakers that existing stockpiles will only last a few weeks. We currently forecast global vehicle manufacturing to grow by 2.3% in 2025, reaching 95.8mn units, marking a recovery from a 0.2% decline recorded in 2024.

Analysis: We believe the rare earth ‘crisis’ showcases the significant vulnerability of global automotive supply chains to bottlenecks in critical raw materials. Regarding the supply of rare earth magnets, we highlight that Europe’s susceptibility is quite pronounced, given that the region imports 98% of its rare earth magnets from China, which holds approximately 90% of global processing capacity. Additionally, it is worth noting that China is a dominant player in the supply chain of several strategic minerals in the EV supply chain (see chart below). Although it is worth noting that Europe is aiming to improve self-sufficiency in critical minerals through its Critical Raw Materials Act (CRMA), we highlight that rare earth processing operations in Europe not only struggle to compete with Chinese producers on cost, but also lack the necessary scale to supply its automotive sector. This creates a critical dependency in the supply chain for various critical EV components. Hence, as European mines are not profitable at current price levels, we believe that economic incentives for industry players are likely to continue favouring Chinese suppliers. This situation is likely to also complicate the EU’s CRMA target of securing 40% local processing of strategic raw materials (such as rare earths) by 2030, among other objectives under the CRMA.

In response to the rare earth magnet constraints, we stress that automotive firms are likely to reconsider their sourcing strategies. This may include partially shifting production to China to bypass the rare earth magnet licensing bottleneck, despite additional tariffs this would entail for US-based carmakers. Moreover, some manufacturers might revert to older EV motor technology that relies less on rare earth magnets. Furthermore, we believe production lines could be modified by eliminating certain premium non-critical features that require small electric motors with rare earth magnets. These include adjustable seats, steering wheel adjustment systems and electric sunshades.