Global automotive industry faces critical bottlenecks as China tightens grip on rare earth supply chain

The global automotive industry faces a critical challenge as China tightens its grip on rare earth magnets. According to Wood Mackenzie’s latest insight, there was a 51% drop in Chinese rare earth magnet exports in April 2025 compared to March, far exceeding seasonal norms.  

The sharp decline follows the introduction of new export restrictions in April, with Chinese government approving only around 25% of export licence applications submitted by automotive suppliers. Wood Mackenzie’s insight indicates that the restrictions have significantly disrupted the supply of these critical components for electric vehicle (EV) and hybrid drivetrains, sending shockwaves through the global automotive supply chain. 

Thomas Jones, senior analyst, rare earths at Wood Mackenzie, said “the sudden drop in exports has exposed the automotive industry's vulnerability to supply chain disruptions. With China controlling over 90% of global processing capacity for rare earth magnets, the impact on vehicle production has been severe and far-reaching.”  

The effects of this export reduction have been felt across China's major trading partners. The United States experienced a 58% decline in imports, while India saw a staggering 78% drop. South Korea and Germany were also significantly affected, with decreases of 73% and 47% respectively. The European Association of Automotive Suppliers (CLEPA) reports that the export restrictions have already led to the shutdown of several production lines and plants across Europe. 

Major automakers are experiencing varying degrees of disruption, with companies such as BMW, Suzuki, and Ford reporting impacts ranging from minor supplier delays to month-long production halts for specific models. The situation is especially critical for EV manufacturers, as most electric vehicles rely on permanent magnet synchronous motors that use neodymium-iron-boron magnets. 

Egor Prokhodtsev, principal analyst, transportation and mobility at Wood Mackenzie commented, “Our analysis suggests that a substantial portion of global automotive production could be affected by China’s tighter export controls. This crisis makes clear just how critical it is to build more resilient and diversified rare earth supply chains in the face of geopolitical challenges.”  

According to Wood Mackenzie, automakers and governments are urgently engaging with Beijing officials to seek faster approvals for rare earth magnet exports amid mounting supply concerns. In parallel, manufacturers are exploring short-term alternatives to mitigate the disruption. Some are considering importing sub-assemblies and components containing magnets, which are not currently subject to the same export restrictions. However, this workaround could drive up costs, particularly for US automakers facing tariffs, and may only be viable for high-margin producers able to absorb the added expense. 

The United States and Australia are leading investment in developing an alternative rare earth supply chain. The US has already invested US$1.4 billion in various rare earth mining, separation, and refining projects. Despite these efforts, Wood Mackenzie estimates that it may take several years before commercial production reaches the scale required to meet global demand. The development of projects in Europe has been slower and lacks the same scale, urgency, and firm funding support as those in the US and Australia. 

“These short- and medium-term responses, while encouraging, are unlikely to fully resolve the underlying supply risk,” said Thomas. “Developing long-term strategies to secure alternative sources of rare earth elements outside China will be critical for the industry’s resilience.” 

Prateek Biswas, senior research analyst, transport and materials at Wood Mackenzie said, “this disruption is likely to accelerate innovation in alternative motor technologies and drive a broader reshaping of global supply chains within the EV sector.”