There's one thing you need to know about the automotive supply chain: Disruptions happen slowly, then all at once. During the COVID-19 pandemic, it took a while for the factory closures to lead to inventory problems. But when they did, they happened everywhere, and prices went bananas. Now, we're seeing a similar disruption play out after the root cause has (supposedly) been addressed.
As tensions between the U.S. and China flared in April, China curbed exports of rare-earth elements and magnets containing them. Those elements are crucial to modern vehicles, being used in everything from electric motors for EVs and hybrids to in-car speakers. As we saw during COVID, too, losing access to any one key component can hold back production. Once production stalls, automakers need to rework their inventories of other materials to make sure that a stall in one component doesn't lead to excessive inventory of another. It's a mess, and it's just starting, as Reuters reports.
"The whole car industry is in full panic," Frank Eckard, CEO of German magnet company Magnosphere, told Reuters. "They are willing to pay any price."
The good news is that the root cause seems to have been addressed. China granted export licenses for rare-earth materials to a few U.S. companies, Reuters reported on June 6. Then on Friday, U.S. President Donald Trump said that Chinese leader Xi Jinping was lifting those restrictions.
That means that the interruption shouldn't last long. That's assuming that the U.S.-China trade war doesn't accelerate, though, a big assumption in such turbulent times. The Trump administration and Xi's China still seem far apart on a number of issues, ranging from the future of Taiwan to global market access for Chinese EVs. Neither wants to be seen as backing down, but domestic issues in both China and the U.S. mean neither wants to push things too far.
The real effect of the episode, however, is exposing how reliant the U.S. and other Western countries are on Chinese components. China produces 60% of the world's rare-earth elements and processes 90% of them, according to the Center for Strategic and International Studies. Those materials are vital to a staggering number of industries, and China has just made clear that it is willing to turn off the taps.
As the country's stranglehold on supply chains spreads to the EV and solar industry, it's more important than ever to diversify where materials come from. That was the plan behind the Inflation Reduction Act, which sought to establish a robust battery and clean-energy supply chain in the U.S. It's also part of why U.S. automakers like General Motors and Ford are betting on lithium manganese rich (LMR) batteries. LMR batteries are less reliant on rare materials from countries like China, which Ford and GM both see as important to ensuring supply chain resilience.
Companies have also started looking to reduce their reliance on rare-earths overall. Some automakers are pivoting toward motors without permanent magnets. Rivian CEO RJ Scaringe recently said on Bloomberg that the company is looking into motors that don't use rare-earth materials.
It can't come soon enough. In a world where trade wars are started and ended at a whim, you don't want to be reliant on a geopolitical adversary. Otherwise, you might find yourself in a panic.
Contact the author: Mack.Hogan@insideeevs.com.
