undefined undefined/iStock Editorial via Getty Images
The automotive industry is bracing for supply chain disruptions due to China’s export restrictions on rare earth elements and magnets, which were imposed in retaliation to President Donald Trump’s tariffs.
China dominates the critical mineral supply chain, producing about 90% of the world’s rare earths that are widely used in the auto, energy, semiconductor, and defense industries.
“The European automotive supply industry is already experiencing significant disruption,” auto supplier association CLEPA has warned, adding that the impacted auto parts are critical to combustion engine and electric vehicles.
“These restrictions have led to the shutdown of several production lines and plants across Europe, with further impacts expected in the coming weeks as inventories deplete,” the group noted.
While the European Union is reportedly in talks with China to address the issue, the bloc is looking to diversify supply chains. The EU on Wednesday identified 13 critical raw material projects overseas to ensure sustainable supply, including in the UK, Ukraine, Greenland, Canada, and South Africa.
Industry impact
Some of BMW’s (OTCPK:BAMXF) supplier network has been disrupted by China’s export controls, but the automaker’s own plants are running as normal, Reuters reported.
Joerg Burzer, production chief at Mercedes-Benz (OTCPK:MBGAF), said the company is not currently impacted, but it is discussing with suppliers possible “physical buffers” for its supply chain.
A Volkswagen (OTCPK:VWAGY) spokesperson told CNBC that while the automaker’s supply chain is stable, its suppliers have indicated that only a limited number of rare earth export licenses have been granted by Chinese authorities.
In a conference on Wednesday, Ford (NYSE:F) CFO Sherry House said there have been some delays in procuring rare earths, but the company is managing the issue for now. “It just puts stress on a system that’s highly organized, with parts being ordered many weeks in advance.”
Nissan (OTCPK:NSANY) CEO Ivan Espinosa told CNBC that the automaker is looking at ways to minimize the impact of the export controls. Suzuki (OTCPK:SZKMY) has reportedly halted production of its Swift car temporarily.