Western automakers are closing plants as managers consider moving production to China
Bullets:
Auto plants across the world are running out of electric magnets, which power everything from fuel injection system and brakes, to power windows and seats.
Production lines are closing in Japan, Europe, and in the United States. India, the world's 4th largest auto manufacturer, is days away from production cuts.
Ironically, Western and Indian carmakers are strongly considering moving production of electric motors and other assemblies to China, which may be acceptable to Chinese authorities.
However, such a move would expose firms to high tariffs and add weeks to production times.
Report:
Good morning.
Chinese companies are at the top of the most important supply chains in the world—basically all of them. Policymakers in North America and Europe are using tariffs, which are intended to compel corporate executives to move supply chains back to domestic markets. Chinese officials are using their dominant positions in the supply chains, by either slowing them down or shutting them off completely, to force companies to move the production to China, where the supply chains are.
The results of these strategies are becoming obvious, and Western managers are faced with either buying more from China, or closing factories. It’s happening in all manufacturing sectors, but we’ll look today at carmakers.
In the US, factories are already cutting back, and things will get worse soon. It’s a mistake to think that the rare earths problem is only hitting makers of electric vehicles—all the cars use these magnets in braking systems, steering, fuel injection, and car seats. China has stopped the exports of these magnets, and everyone outside China is running out.
The two big problems are spelled out here: China makes almost all of them, 9 times more than the rest of the world combined, and that’s just too big of a number to be overcome any time soon. The second problem is that the industry is very capital intensive—everything is expensive, land, surveying, equipment, refining, new roads and water sources—but the profit margins aren’t big enough to attract the capital. It also doesn’t attract enough students to want to learn how to do this tough work, for little reward—China has over 30 university programs for the chemistry and engineering programs for rare earth processing, and the US doesn’t have any at all.
On the Chinese side, it takes a long time for government approvals for new rare earth export applications, so some magnet manufacturers here aren’t making them at all, pending new guidance and permissions to export. So big problems at American automotive plants, which will be at a standstill soon enough.
There are similar problems emerging everywhere else. The American position is probably worse, because Chinese rare earth export restrictions are especially targeting Pentagon contractors and weapons manufacturers. Still, European manufacturing is also in big trouble. And in Japan, Suzuki shut down production of its Swift compact, due to supply chain problems on China-sourced rare earth metals and magnets. “This is a historic first” for Japanese carmakers. It was originally a 10-day production halt, then Suzuki extended that by another week. Ford Motor was the first major carmaker to close lines; in May the Explorer SUV plant in Chicago halted production, and European automotive suppliers say they are closing some plants.
In India, automakers warn that they, too, will be shutting down production. This is the Just-in-time manufacturing system in action, whereby manufacturers keep limited quantities of parts on hand to keep inventory costs down. Three to six weeks of stock are typical, sometimes a little more, so it becomes a math problem at that point—daily production divided into current stocks, tells you how many days of work you’ve got left. In order for Indian companies to buy more, companies there first need approval from India’s government, then the paperwork goes to the Chinese embassy, then to suppliers here, where all the parties to the sale fall under strict export rules. India has more than 20 pending applications, and no progress yet. Indian carmakers then are looking at having China make more of the motor assemblies.
Company executives in North America are also looking for answers, fast, and their two stark choices are spelled out here, in this Wall Street Journal byline. Shut down assembly lines, or move production to China.
One idea, on the engineering side, is to reduce how many magnets are needed in the car—adjustable seats, power windows, sound systems—we could go back to doing things the old way, but car buyers would obviously demand price discounts if these user-friendly features are stripped out.
They are just weeks away now from shutting down car production, so one alternative is to produce the electric motors in Chinese factories, or sending American motors to China and let Chinese factories put in the magnets. Both of those assume that would be acceptable by authorities here, but analysts believe so, because the export restrictions govern magnets and the rare earths themselves, but not necessarily the finished parts.
Production lines in Europe are already closed, along with Ford Explorer in Chicago and Suzuki in Japan, and parts suppliers are warning officials in Washington that shutdowns are imminent. Two choices here, one bad, and the other very bad: ship parts across the Pacific to have a tiny magnet installed, then shipping them back—that costs a lot of money and time, and they’re running out of time.
That strategy also exposes companies to higher tariffs, ironically again, because Chinese factories would be shipping high-value electric motors back to the US and Europe. The alternative, though, is closing their factories.
They can’t get magnets from anywhere else, to close this gap between China at 90% and the rest of the world, combined, at just 10%. Our tariff strategy, again, is to make the tariffs high enough that we build the mines and the refineries and the manufacturing centers for these magnets, and decouple those chains from China. Even if it does work, that will take decades. China’s strategy is to keep these magnets and metals for themselves, then wait for the phone to ring.
Resources and links:
New York Times, U.S. Dependence on China for Rare Earth Magnets Is Causing Shortages
https://www.nytimes.com/2025/06/02/business/china-rare-earths-united-states-supplies.html
Wall Street Journal, Automakers Race to Find Workaround to China’s Stranglehold on Rare-Earth Magnets
https://www.wsj.com/business/autos/car-companies-production-rare-earth-shortage-aaf87ad2
Nikkei, China's rare-earth export curbs halt output of Suzuki Swifts in Japan
Nikkei, Indian carmakers scramble in face of China rare earth curbs
SCMP, Crackdown on illegal mines as China tightens critical mineral controls amid row with US
South China Morning Post, EU industry could grind to a halt over China’s rare earth restrictions
Reuters, China increases scrutiny of rare earth magnets with new tracking system
China curbs on rare earth magnets: Electric Vehicle makers face shortage, approach govt
https://indianexpress.com/article/business/china-curbs-on-rare-earth-magnets-electric-vehicle-makers-face-shortage-approach-govt-10013100/
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