Cars, China's rare earths squeeze stops first factories in Europe

The Society of Indian Automobile Manufacturers (Siam) has asked the Narendra Modi government to mediate with Beijing, warning that the country's car production as of June risks a 'sudden halt'.

Before that, US industry had mobilised, with a letter to the Trump administration dated 9 May, signed by two associations (Alliance for Automotive Innovation and MEMA) that together represent the entire supply chain, from vehicle manufacturers with plants in the US - including Stellantis - to suppliers of components of all kinds, including batteries and semiconductors.

"Without reliable access to these elements (rare earths, ed.) and magnets," reads the text, filtered to Reuters, "automotive suppliers will not be able to produce critical components, including automatic transmissions, throttle bodies, alternators, auxiliary motors, sensors, seat belts, loudspeakers, lights, engines, power steering and cameras.

Among the first to warn of the risk of rare earths shortages was Mp Materials, one of the few non-Chinese manufacturers and the only one operating in the US, which had predicted the emergence of difficulties starting in June: "I would not be surprised to see factories closing next month, whether in aerospace, automotive or consumer products," said CEO and co-founder Jim Lutinski on 9 May in a call with analysts, whose Il Sole 24 Ore had reported.

The knots are now coming to the boil, marking a further escalation in the trade wars that threaten the global economy. Just on Wednesday 4, the doubling to 50% of US tariffs on aluminium and steel came into force: an 'adjustment' - as the White House executive order defines it - from which Trump has exempted only Great Britain in extremis, which risks exacerbating tempers, as well as inflicting yet another devastating blow to the European metal industry.

The rare earths game is closely intertwined with that of tariffs. On 4 April - just two days after the flurry of tariffs announced by Trump on the so-called Liberation Day - Beijing also imposed strict export controls on seven of these critical metals (the category includes seventeen in all): raw materials that are indispensable in many applications, not only in the automotive industry but also, for example, in the defence industry, for which China is by far the dominant supplier, controlling roughly 70% of mineral extractions and 90% of the world's processing capacity.

The scheme is the same as the one already applied by the People's Republic with other critical metals: export licences are revoked and then renewed on a case-by-case basis, in an opaque and cumbersome procedure that usually takes several weeks and that in the name of national security allows the Chinese government to deny permission to supply certain customers.

European car parts companies, Clepa reported on Wednesday 4, have filed hundreds of applications for new licences, but so far Beijing has accepted only a quarter of them. Some have been rejected 'for largely procedural reasons', many others are still under consideration by the authorities. 'The procedures seem to change from one province to another and in several cases information relating to intellectual property rights has been requested,' the association added, warning that if the process is not speeded up many other factories in Europe will have to close within 3-4 weeks because they will have run out of stock.

The EU Chamber of Commerce in China has taken action and has already obtained 'several meetings' at the Ministry of Commerce, writes the South China Morning Post, quoting Adam Dunnett, secretary-general of the organisation and vice-president of the Ebo (European Business Organisation), as saying that the delays - at least for European importers - are mainly bureaucratic.

'Thousands of applications have to be processed and the ministry's resources are limited,' Dunnett said. 'In the last week we have seen a few approvals pop up, but there are companies that have filed dozens of applications and some have had to stop production. Another obstacle, according to Dunnett, is the Chinese authorities' frequent request for 'sensitive information, which could compromise intellectual property and which (companies) are therefore reluctant to grant'.