• China’s rare earth export curbs risk disrupting EV motor production, especially of permanent-magnet types.
• Besides EV motors, rare earths are also used in battery control systems, thermal management and next-generation chemistries like solid-state and sodium-ion batteries.
• GM, BMW and others are developing rare-earth-free motors, but mass adoption is still years away.
• While China may benefit locally, prolonged curbs could backfire if global players shift to alternatives.
  

China’s decision to cut back on rare earth mineral exports appears to be in response to rising import tariffs on Chinese goods in the US and Europe, particularly automotive and automotive components. China reportedly accounts for nearly 60% of global rare earth mineral mining and processes about 90% of the world’s rare earth minerals. Moreover, it dominates the supply chain for seven critical elements – dysprosium, gadolinium, lutetium, samarium, scandium, terbium and yttrium. Many of these are concentrated in China and Myanmar and are among the hardest to refine.

While rare earth elements are not inherently scarce, China’s mastery of the complex and multi-stage separation processes, which often involve over 100 steps, has solidified its global dominance. Notably, the country supplies nearly all of the world’s neodymium, dysprosium and terbium, essential for producing heat-resistant permanent magnets.

These minerals are crucial for various sectors, like aerospace, electronics, defense, clean energy and particularly automotive. In electric vehicles (EVs), rare earths like neodymium, dysprosium and terbium are primarily used in motors, especially permanent magnet motors, highlighting their critical role in the global EV supply chain.

While rare earth elements are most directly linked to EV motor production (especially for permanent magnets), they also have applications in the evolving battery technology. Although not part of the core chemistry of lithium-ion batteries, they remain vital for battery control systems, thermal management and next-generation technologies such as solid-state and sodium-ion batteries that are still in the R&D phase.

However, the recent restrictions on rare earth mineral exports by China could disrupt this growth trajectory. The curbs pose a potential risk to the stability of the EV supply chain and market expansion. Although the immediate impact of China’s export restrictions may be limited due to existing inventories covering short-term demand, prolonged curbs could disrupt EV production, whether for four-wheelers, two-wheelers, three-wheelers or commercial vehicles. This could mirror the post-COVID-19 semiconductor shortage, which had strained global automotive supply chains then.

Leading automakers such as GM, Mercedes-Benz, BMW, Ford and Stellantis, along with Tier-I suppliers like BorgWarner and ZF, are actively developing electric motors that require little to no rare earth minerals. However, these alternatives are still far from mass production and widespread adoption. Moreover, many smaller motors used in components like window regulators, wipers and sunroofs still rely on rare earths. Since China controls nearly 99% of the global supply of heavy rare earth minerals like neodymium, dysprosium and terbium, it remains very difficult for other countries to reduce their reliance on China.

Analyst takeaways
China’s export restrictions are expected to strengthen its domestic supply chain. With reduced exports, local prices of rare earth minerals are likely to decline, lowering production costs for EV motors, battery cooling and control units, potentially making EVs more affordable in the Chinese market. Besides, exports of rare-earth-based components may rise, and Tier-I suppliers or Western automakers could establish sub-assembly operations in China, further stimulating the local economy.

However, if non-Chinese automakers accelerate the shift toward alternative technologies that reduce or eliminate the need for rare earth minerals, the export curbs may backfire. In that case, China risks losing returns on its significant investments in mining and refining these materials. Against this backdrop, it is likely that automakers and governments would seek to negotiate with China to resume rare earth exports, recognizing that a prolonged export freeze would hurt both sides.