This month, China announced export controls on rare earth elements in response to the United States' so-called "reciprocal tariffs." This also triggered concerns among many automakers about the prospects of automobile production. The seven rare earth elements restricted for export to the United States are mainly medium and heavy rare earth elements, such as dysprosium, terbium and samarium, which are often used to make high-performance magnets that can withstand high temperatures and are therefore critical for military applications such as jets, missiles and drones, as well as important rotors, engines and gearboxes in electric and hybrid vehicles.
Chinese exporters now need to apply for a license for each shipment of overseas rare earth materials to ensure they are not sold to the United States. An auto industry executive said the restriction is a huge problem for Tesla and other U.S. automakers.
There are widespread concerns in the automotive industry that China's export controls on the United States may cause chaos in the supply of rare earths in a short period of time. If exporters cannot obtain export licenses in time to deliver goods to the EU or Japan, then there will be big problems in the automotive supply chain.
It will be very painful in the short term
Jan Giese, a metals trader at Tradium in Germany, warned that customers were caught off guard as most automotive groups and their suppliers appeared to hold only two to three months' worth of magnets.
Inventories are currently estimated to last three to six months, but companies are racing to stockpile more raw materials and find alternative supplies to avoid major disruptions, according to some government officials, traders and auto industry executives.
MP Materials, the only U.S. rare earth mine, said last week it would work to process nearly half of the ore it mines at its sites and store the rest while it expands its processing capabilities.
However, rare earth mines in the United States mainly produce light rare earth elements such as neodymium and praseodymium, which are the main components of rare earth permanent magnets in electric vehicles and wind turbines. But some heavy rare earth elements that China restricts exports, such as terbium and dysprosium, are critical for magnets to withstand high temperatures.
Terbium prices have risen 24% since the end of March to $933 per kilogram. Steve Christensen, executive director of the Responsible Battery Alliance, a U.S. business association, said some battery manufacturers may begin to experience shortages of key components within weeks.
Mining company Niocorp pointed out that new rare earth mines in the United States are still several years away from being put into production. If financing goes well, mines that mine and process niobium, scandium, titanium and various rare earth elements may be put into operation before the end of President Trump's term.