Rare earth elements: Auto industry looks beyond China

China’s dominance in the rare earth elements (REEs) and materials market has far-reaching implications for the global auto industry. These critical minerals resources are essential for various high-tech applications, including electronics, renewable energy technologies and electric vehicles (EVs), as well as EV components such as traction motors.

China’s pivotal role in the global rare earth supply chain significantly influences the production, processing and distribution of these critical materials. China now accounts for more than 60% of the world’s rare earth minerals production and nearly 90% of its processing capacity, thanks to its vast reserves and well-established mining and refining infrastructure.

The country’s rare earth minerals industry further benefits from economies of scale, enabling lower-cost production than many of its competitors.

This control over the rare earth elements supply chain has major geopolitical implications. The country’s ability to influence the availability and pricing of rare earth elements can significantly impact global industries and economies. China rare earth metals dominance underscores the need for diversified global supply chains, especially in sectors like automotive manufacturing that rely on long-term materials stability.

In response, other nations are seeking to diversify their sources of rare earth elements and invest in domestic production. However, replicating China’s infrastructure and expertise remains a steep challenge. As demand for clean energy and electronics grows, China’s role is likely to remain critical, shaping the future of industries worldwide, especially the fast-evolving electric vehicle industry.

In April 2025, in response to escalating trade wars and political tensions, China introduced a revised licensing process for the export of rare earth elements, officially aimed at enhancing regulatory oversight and ensuring sustainable practices.

The new framework, overseen by the Ministry of Industry and Information Technology, requires exporters to obtain specific licenses before shipping REEs abroad. Seven elements were placed under heavy scrutiny, while other elements are still subject to new licencing approvals.

Three elements are critical to the automotive industry: neodymium, dysprosium and terbium, with the latter two included in the seven elements under scrutiny.

Because of these new regulations, the big three US OEMs expressed concern about the automotive supply chain, with Ford even having to temporarily shut down its production line in Chicago during June. Recent negotiations, however, have resulted in an agreement between Washington and Beijing for a temporary six-month license simplification process that removes red tape for US OEMs.

As of early July 2025, China was approving licenses for the automotive industry.

Worries from Europe, India and Japan also appear to be abating. Still, the rare earth elements supply chain remains vulnerable, highlighting how easily it can become a geopolitical bargaining chip. With global trade deals in flux and US–China relations on edge, the industry must capitalize on this period of relative calm. 

Magnets, and by extension, rare earth materials, are critical to many automotive components—from speakers to sensors to electric motors. Traction motors for battery electric vehicles (BEVs) and hybrid vehicles depend heavily on magnets containing neodymium, dysprosium and terbium. These elements are crucial for their thermal management properties within the motor.

Despite significant R&D efforts to eliminate dysprosium and terbium, few, if any, OEMs or suppliers outside Mainland China have succeeded. This leaves the industry highly vulnerable to supply chain bottlenecks or export restrictions on these materials and the magnets containing them. 

In the mid- to long-term, regions like North America and India are exploring domestic extraction and production of rare earth materials and refined magnets to reduce reliance on a single country and gain regional control over the supply chain.

In Europe, while there are signs of REE investment, the industry is also exploring alternative technologies to remove magnets from these motors. These efforts are shaping key automotive industry trends, as manufacturers prioritize material independence and technology shifts.