A global shortage of rare earth elements is directly hitting the European automotive industry. Several parts factories and production lines have temporarily ceased operations, according to the European Association of Automotive Suppliers (CLEPA). The cause: export restrictions imposed by China since April.
Less Than 25 percent of License Applications Approved
Since the restrictions began, suppliers have submitted hundreds of export license applications to Chinese authorities. However, less than a quarter have been approved so far, forcing temporary closures. CLEPA estimates that if the situation doesn't improve rapidly, more production shutdowns will occur within three to four weeks.
A major risk for Volkswagen, Mercedes-Benz and BMW
Major German automakers like Volkswagen, Mercedes-Benz and BMW—as well as giants like Bosch—depend on rare earth elements to manufacture critical components: electric motors, sensors, alternators and more.
Even though BMW states its factories are operating normally, several suppliers in its network are affected.
Customs clearance delays worsen the situation
Delays in issuing licenses, combined with customs processing delays even for authorized exports, further complicates the supply chain. "Although some licenses have been granted, it is currently insufficient to ensure smooth production," said Hildegard Mueller, President of the VDA (German Automobile Association).
China using rare earths as political leverage
Beijing's decision is perceived as a strategic response in the ongoing trade war with the Trump administration. China controls a large portion of the global rare earth supply chain, which is essential for the automotive, aerospace, semiconductor and even military industries. In April, exports of those materials fell by half.
U.S., India and Europe in Panic Mode
Facing this crisis, several international players are escalating their rhetoric. In May, the Alliance for Automotive Innovation (which includes GM, Toyota, VW and Hyundai) sent a letter to the Trump administration. India, for its part, plans to send a delegation of automotive executives to China in the coming weeks.
Frank Fannon, a former senior U.S. State Department official, succinctly summarized the urgency: "The time to act was yesterday. We must now mobilize the entire government apparatus to secure our supplies."