How China could shut down auto factories around the world

CNBC

a day ago

China's dominance of the global supply chain is starting to hurt automakers.
On April 4, the country cut off exports of a class of minerals called "heavy rare earth elements," and it sent the global auto industry into a panic.
Rare earths are a class of 17 elements that have become indispensable in all kinds of applications — everything from fighter jets and submarines, to smartphones and appliances. You can even find them in sports equipment, like tennis rackets and baseball bats.
They are also, of course, essential to the modern automobile. Gas burning cars use them to filter pollution through the vehicle's catalytic converter. Electric vehicles use them in motors and batteries.
"Rare earths are really critical, and not just for electric vehicles," said Gracelin Baskaran, director of the Critical Minerals Security Program at the Center for Strategic and International Studies. "They are in your seat belt, your steering wheels, various parts of your electrical components. You are not going to manufacture a car without rare earths."
Rare earths are split into further categories, based on their atomic weight. Light rare earths are easier to source. It's the medium and heavy ones that China has totally monopolized. China controls about 70% of the world's rare earth mines. But where it really dominates is in processing.
The name "rare earth elements" is a bit misleading — the elements themselves are not that rare in nature. What makes them "rare" is the complex and difficult process of separating them from the rock they are embedded in, and from each other. China controls about 90% of the world's rare earth processing, and has a total monopoly on the processing of heavy rare earths.
Since at least 2023, China has been tightening its grip on several of the key critical minerals it provides for the world, Baskaran said.
Still, the April 4 export restrictions shocked the automotive world.
"It came out of nowhere," said Dan Hearsch, managing director at AlixPartners. "Nobody had any time to react to it. I mean, within a matter of weeks, all of the material in the pipeline was out."
European automakers shut down factories. Ford had to idle production of its popular Explorer SUV.
This month, China started permitting some access to companies that supply parts to some automakers. And this week the Trump administration said it had reached a deal to expedite rare earth and magnet shipments to the U.S.
Still it is unclear how durable these deals will be.
"We're not out of the woods yet," Baskaran said. "There is a lot of volatility in the U.S.-China relationship in between tariffs and mineral restrictions. We've seen China ramp up restrictions over two years. Rare earths are just the newest one."
There are longer-term solutions if China cuts off access again: recycling, developing other sources and innovation, for example. This crisis may even spur the industry to take action that reduces dependence on China.
But this rare earths crisis is just the latest in a series of supply disruptions over the last several years. Hearsch said it will likely get worse.
"Today it's rare earths," Hearsch said. "But tomorrow it can and will be something else that maybe we're not thinking about, that maybe isn't even all that valuable and suddenly will be."
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