Automakers worldwide are on the verge of a supply crisis
Auto executives across the globe have raised urgent concerns that an impending shortage of rare earth magnets from China used in an extensive number of car parts threatens to upend vehicle production in weeks. Earlier this month, the Alliance for Automotive Innovation, a trade group representing Volkswagen, Hyundai, and General Motors, expressed unease regarding the impending shortage in a letter to President Trump. The letter listed automatic transmissions, throttle bodies, alternators, various motors, sensors, seat belts, speakers, lights, power steering, and cameras as among the many components affected by a rare earth magnet supply shortage, Reuters reports. The Alliance for Automotive Innovation and The Vehicle Suppliers Association cited reduced production volumes and complete shutdowns of assembly lines as severe outcomes of the scarcity.
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United States claims China is dragging its feet with minerals
The Chinese government halted exports of rare earth magnets on April 4 during its trade war with the United States, but American officials anticipated China’s mid-May trade war truce with the United States would reopen rare earth magnet access. However, United States trade representative Jamieson Greer said Friday that American officials: “haven’t seen the flow of some of those critical minerals, like they’re [China] supposed to be doing,” according to The New York Times.
China’s embassy in Washington responded, saying the United States was abusing export controls in the semiconductor sector. An American official familiar with the United States and China’s trade talks earlier this month in Geneva said discussions didn’t involve export controls, Reuters reports. This same official claimed Beijing was moving slowly on promises to resume rare earth export licenses. India also hasn’t received the licenses, putting the country on pace to pause auto production in early June. Europe has received some license approvals, but its Union Chamber of Commerce in China, Jens Eskelund, said the amount is insufficient.
A rare earth mineral shortage would most impact United States automakers, and a separate New York Times report notes that some Chinese rare earth magnet makers have stopped production while waiting for permission to resume exports. China controls over 90% of global processing capacity for the magnets used in industries like auto manufacturing, fighter jet production, and home appliances, according to Reuters. The United States makes essentially no high-performance rare earth magnets, but small factories are scheduled to begin production this year in South Carolina and Texas. One operational mine in Oklahoma relies on China for processing. Small sales and profit margins have reduced many countries’ desire to produce the magnets, with worldwide sales being a small fraction of larger industries like copper mining.
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Final thoughts
While the United States auto industry will be most affected by a rare earth magnet shortage, the issue is global. To make matters worse, permit applications to China can require hundreds of pages of documents. German auto parts manufacturer Bosch said its suppliers are experiencing difficulty dealing with China’s export license procedures. Despite receiving some licenses, Europe is still facing significant supply chain disruptions, and India could halt all auto production early this month. In response, the European Union is fast-tracking its mining and mineral initiatives to reduce its dependency on China.
