Automakers Sound Alarm Over Rare-Earth Supply Crunch Amid Chinese Export Restrictions: Report

China, which holds more than 90 per cent of global processing capacity for rare-earth magnets used across a range of industries, introduced new export restrictions in early April.

These vital components are embedded in essential car systems—from windshield wipers to anti-lock braking sensors—and their sudden shortage could bring factory lines to a standstill.

Source : Freepik

Global car manufacturers are facing a looming supply crisis, warning that production stoppages could begin in a matter of weeks due to China's clampdown on rare-earth magnet exports. These vital components are embedded in essential car systems—from windshield wipers to anti-lock braking sensors—and their sudden shortage could bring factory lines to a standstill.

The warning came in a May 9 letter addressed to officials in the Trump administration, sent by the Alliance for Automotive Innovation, which represents major automakers including General Motors, Toyota, Volkswagen, and Hyundai. In the letter, which had not been previously reported, the industry made a stark appeal for intervention, reported Reuters.

"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," the Alliance wrote.

The letter was co-signed by MEMA, The Vehicle Suppliers Association, and warned that shortages of these essential parts would inevitably ripple through the industry. "In severe cases, this could include the need for reduced production volumes or even a shutdown of vehicle assembly lines," both groups stated.

Diplomatic Push Fails to Ease Supply Bottlenecks

Despite ongoing diplomatic efforts, including discussions earlier this month in Geneva between US and Chinese officials, auto industry leaders say the issue remains unresolved. Alliance CEO John Bozzella and MEMA CEO Bill Long told Reuters that the risk of disruption to American auto production continues to loom large. They acknowledged the administration's engagement but emphasised the urgency of action.

Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer reportedly raised the rare-earth issue in Geneva talks. Greer noted that while China had agreed to lift restrictions, implementation has lagged. "We haven't seen the flow of some of those critical minerals as they were supposed to be doing," he told CNBC.

China, which holds more than 90 per cent of global processing capacity for rare-earth magnets used across a range of industries, introduced new export restrictions in early April. Under the new rules, companies must obtain licenses from Beijing, a process described by manufacturers as opaque and burdensome. As a result, exports of rare-earth magnets from China dropped by half in April, according to industry data.

Tensions Mount as Supply Delays Worsen

The procedural hurdles in securing these licenses are straining supply chains. Some exporters are reportedly required to submit hundreds of pages of documentation, and approvals remain scarce. German auto parts supplier Bosch highlighted the challenges, with a spokesperson describing the licensing process as "complex and time-consuming, partly due to the need to collect and provide a lot of information."

Although a few licenses have been issued—some to Volkswagen suppliers—others, including Indian automakers, remain in limbo. They warn that if the situation doesn't improve, they may be forced to suspend production in early June.

The standoff has also rekindled tensions between Washington and Beijing. On Friday, President Donald Trump took to Truth Social to accuse China of backtracking on its commitments: "China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US." In response, China's embassy in Washington accused the US of misusing export controls in the semiconductor sector.

A US official familiar with the Geneva negotiations clarified to the news agency that the discussions only covered tariffs and Chinese non-tariff measures, not American export controls. The same official expressed concern over Beijing’s slow pace in issuing rare-earth export licenses and hinted that further delays could trigger retaliatory measures from the US, especially if vehicle manufacturing grinds to a halt.