Auto manufacturers are warning of new supply chain disruptions tied to a global shortage of rare earth magnets, a key component in electric vehicle motors and advanced drivetrains. The shortage is being driven by new tariffs and export restrictions from China, which dominates global rare earth production.
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Some European suppliers are already feeling the impact. According to a Reuters report, multiple auto parts plants in Europe have begun shutting down due to limited supplies of rare earth magnets. The ripple effects are expected to spread quickly to US automakers and suppliers.
The report noted that “a number of automakers have raised concerns that without an urgent solution, vehicle production could be hit within months.” Industry leaders are scrambling to secure alternative sources of the magnets, but global capacity outside China remains limited.
Rare earth magnets are a critical component in both traditional internal combustion engine vehicles and EVs. They are used in electric motors, drivetrains, sensors, and other advanced vehicle systems. China currently supplies more than 90% of the world’s rare earth magnets, making the auto industry highly dependent on imports.
The new tariffs imposed by the US and European Union on a range of Chinese imports, including rare earths, combined with China’s own tightening of export controls, are creating a supply crunch just as EV demand is accelerating.
The shortage could result in production delays, higher costs, and inventory challenges across global auto supply chains. US automakers are already warning that their suppliers may be unable to keep up if imports continue to be restricted.
Companies are now looking to diversify their sourcing, including exploring options in Japan and Australia, but building out alternative supply chains will take time.
For now, rare earths are shaping up to be the next major bottleneck in auto production, adding to a list of supply chain risks that have challenged the industry in recent years.
