Four major automakers are racing to find workarounds to China’s stranglehold on rare-earth magnets, which they fear could force them to shut down some car production within weeks.
Several traditional and electric-vehicle makers—and their suppliers—are considering shifting some auto-parts manufacturing to China to avoid looming factory shutdowns, people familiar with the situation said.
Ideas under review include producing electric motors in Chinese factories or shipping made-in-America motors to China to have magnets installed. Moving production to China as a way to get around the export controls on rare-earth magnets could work because the restrictions only cover magnets, not finished parts, the people said.
If automakers end up shifting some production to China, it would amount to a remarkable outcome from a trade war initiated by President Trump with the intention of bringing manufacturing back to the U.S.
“If you want to export a magnet [from China] they won’t let you do that. If you can demonstrate that the magnet is in a motor in China, you can do that,” said a supply-chain manager at one of the carmakers.
China in April began requiring companies to apply for permission to export magnets made with rare-earth metals, including dysprosium and terbium. The country controls roughly 90% of the world’s supply of these elements, which help magnets to operate at high temperatures. Much of the world’s modern technology, from smartphones to F-35 jet fighters, rely on these magnets.
In the auto industry, rare-earths are what allow electric-vehicle motors to function at high speed. They are also used in less exotic, though no less critical, functions from windshield wipers and headlights.
China was supposed to have eased export controls on rare-earth magnets as part of a 90-day tariff truce agreement with the White House, but the country has slow walked license approvals for magnets. Trump accused China of violating its deal with the U.S. China has pushed back at the notion that it was to blame, alleging “discriminatory and restrictive measures” by Washington, including restricting exports of AI chips and revoking visas for Chinese students.
As exports of rare-earth magnets have virtually ground to a halt, carmakers face hard decisions about whether they can continue to keep some plants operating, according to people familiar with the planning.
In May, industry groups representing most major automakers and parts suppliers told the Trump administration that vehicle production could be reduced or shut down imminently without more rare-earth components from China.
“While efforts are underway to bolster supply chains and suppliers of these elements outside of China, this will take additional time and will not alleviate the immediate shortage of elements vital for automotive components used to produce vehicles here at home,” said the letter, which was signed by the heads of the Alliance for Automotive Innovation and MEMA, the Vehicle Suppliers Association.
Shipping an unfinished part halfway across the world to have a chiclet-sized magnet installed adds to the cost and time it takes to manufacture, but the companies see it as perhaps the only alternative to shutting down some production lines altogether. The move could expose carmakers to additional tariffs, but auto executives believe the alternative would be even worse.
Car companies are also looking at alternative sources for magnets in Europe and Asia, instead of purchasing them directly from Chinese factories as they do currently. None of these sources would provide enough magnets to support the demand from the automotive industry, said one company official.
The people familiar with the planning say many ideas are under consideration that might not come to pass.
The elaborate workarounds being considered underline how reliant the U.S. has become on China for these magnets. The country controls almost all of the refining capability that transforms raw minerals into usable forms. Analysts say China has superior technical know-how for separating rare earth from surrounding rocks. American carmakers aren’t the only ones struggling to source magnets from China.
Car companies in Japan and India have also warned of looming manufacturing disruptions. In Europe, automakers say that the pace of export license approvals hasn’t kept up with their demand.
“Although some licenses have now been granted, this is currently not enough to ensure smooth production,” said Hildegard Müller, president of the German auto industry’s lobbying group. “If the situation does not change quickly, production delays and even production stoppages can no longer be ruled out.”
In the U.S., Ford Motor shut down production of the Ford Explorer at its Chicago plant for a week in May because of a rare-earth shortage, a spokesman said.
The lack of magnets hits EVs and hybrid vehicles harder than conventional cars and trucks. A typical EV contains far more rare-earths than a gasoline-powered model, but rare-earth magnets are found throughout any modern vehicle.
Producing more gas-powered cars instead of EVs isn’t a solution, because companies would risk falling short of federal fuel-economy standards, which could result in fines. Regulatory credits that automakers can purchase from EV-makers, such as Tesla and Rivian, to offset their emissions are sold out through the year 2027.
Another option to conserve dwindling magnet supplies is reverting to older electric-motor technology that doesn’t make use of rare-earth magnets. Carmakers stopped using those motors because the current versions are cheaper and more efficient.
Carmakers are also considering stripping out some premium features, such as adjustable seats, that make use of several tiny electric motors. High-end speaker systems that use rare-earth magnets could also be replaced with downgraded versions.
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