Highlights

• China's export controls on rare-earth magnets have created a severe supply bottleneck for U.S. automakers, threatening vehicle production across multiple industries.
• Manufacturers are exploring unprecedented workarounds, including potentially moving motor production to China to secure critical magnet components.
• The crisis exposes a strategic vulnerability in the global supply chain, with U.S. companies now contemplating relocating high-value production to secure tiny but essential magnet components.

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The U.S. automotive industry is grappling with a critical shortage of rare-earth magnets, key components used in everything from electric vehicle (EV) motors to power seats and speakers. China, which dominates global rare-earth mining and magnet production, recently tightened export controls on these magnets, causing severe supply bottlenecks as reported by Rare Earth Exchanges (REEx). As a result, American automakers and suppliers are in “full panic,” fearing that assembly lines could grind to a halt within weeks. In an ironic twist, some U.S. companies are now considering moving portions of their production to China – or shipping unfinished components there – to secure the magnets they need and avoid factory shutdowns, as reported in Indian media such as Mint (opens in a new tab). This report examines the causes of the magnet crunch, its impact on U.S. auto manufacturing, and the extraordinary measures being considered as a workaround.

China’s Rare-Earth Magnet Restrictions

In April 2025, China imposed new export licensing requirements on certain high-performance magnets made with “heavy” rare-earth elements, such as dysprosium and terbium. These elements enable magnets to maintain strength at high temperatures – a critical property for EV motors, wind turbines, advanced weaponry, and many automotive components. China controls roughly 90% of the world’s supply of these key rare earths and an even greater share of global magnet processing. Under the new rules, Chinese magnet producers are required to obtain government permits to export magnets abroad, a process that has significantly slowed or halted shipments in recent months.

Beijing’s official rationale for the restrictions was to safeguard national security, citing rare earths’ dual civilian-military uses. However, Western observers view the move as retaliation amid U.S.-China trade tensions, particularly since magnets are a choke point where China holds significant leverage. The timing coincided with escalating tariff disputes – prompting former President Trump to complain that China was “slow-walking” export license approvals despite tentative trade truces By early June, industry groups warned that magnet shipments had “virtually ground to a halt,” imperiling production of cars, factory robots, and other high-tech products in the U.S. and elsewhere.

Impact on U.S. Auto Production

The sudden magnet crunch has already forced painful disruptions. In May, Ford Motor Co. halted production of its Explorer SUV for a week at its Chicago plant because it couldn’t get enough high-powered magnets “We shut down plants… because we cannot get high-powered magnets,” Covered by Economic Times, (opens in a new tab) Ford CEO Jim Farley lamented, noting these tiny components are essential for features like seats, windshield wipers, door locks, and audio systems. Ford’s downtime was one of the first visible U.S. casualties of the export curb, and other automakers have issued similar warnings. A coalition of major auto manufacturers and suppliers wrote to the U.S. government in May that vehicle output could be “reduced or shut down imminently” without immediate relief from the magnet shortage.

The vulnerability stems from the deep-seated integration of rare-earth magnets in modern vehicles. Electric cars require about 0.5 kg of rare-earth materials on average – roughly twice the content of a gasoline car– largely due to powerful permanent-magnet motors that make EVs efficient. But even conventional cars rely on dozens of smaller magnets in components such as power steering, sensors, speakers, and mirror adjusters. “Looks like most of the stockpile is still in China, hence the bottleneck,” one industry analyst noted, indicating many U.S. and European firms had little inventory on hand when China’s rules hit. European auto parts manufacturers have already had to halt some production lines due to a shortage of magnets, according to the EU Suppliers’ Association, CLEPA. In the U.S., companies like Ford have resorted to triage measures, even considering scrapping certain high-end features (e.g., multi-way power seats or premium speakers) that use extra magnets in order to conserve supplies.

Considering a Shift of Production to China

With domestic assembly lines under threat, automakers are evaluating unprecedented workarounds to obtain critical magnets. Multiple U.S. and global carmakers – both traditional manufacturers and EV startups – are “considering shifting some auto-parts manufacturing to China to avoid looming factory shutdowns,” according to people familiar with their plans, as cited in Indian media (opens in a new tab).

Among the most drastic ideas under review is relocating the production of electric motors to China or even shipping partially built motors from U.S. plants to China for the installation of magnets, then shipping them back, reports AnewZ (opens in a new tab).

The reason behind this seemingly counterintuitive strategy lies in the scope of China’s export controls. The license restrictions apply to standalone magnets, but finished products containing those magnets can still be exported freely. As one auto supply-chain executive explained, “If you want to export a magnet [from China], they won’t let you… But if it’s in a motor, you can (opens in a new tab).” In other words, a U.S. company could ensure access to Chinese-made magnets by incorporating them into a motor within China’s borders and then importing the complete motor. This convoluted supply chain would guarantee the “magnet problem” is solved at the source, albeit at the cost of extra logistics.

Crucially, any parts shipped back to the U.S. would still face Trump-era tariffs on Chinese imports. Auto components from China can incur duties of around 25%, adding significant costs. Yet automakers say the trade-off may be worth it. The alternative – letting factories go idle for lack of a $20 magnet – would be far more damaging. “Shipping an unfinished part halfway across the world to have a chiclet-sized magnet installed adds to cost and time... but [it] may be the only alternative to shutting down production lines,” the Wall Street Journal reported, noting executives believe paying tariffs is preferable to a total halt in output. In effect, companies are weighing a controlled financial penalty (tariffs + shipping) against the chaos of lost production and sales. One industry veteran called it a “remarkable outcome” that a trade war intended to revive manufacturing is instead prompting manufacturers to do more work in China.

Thus far, automakers have treated this China shift as a contingency plan—a reluctant “break glass in case of emergency” option. People familiar with planning emphasized that many ideas are being explored and “might not come to pass” if the supply situation improves. Nonetheless, that such measures are on the table at all underscores the severity of the crisis. It also highlights China’s leverage: by throttling the export of a critical subcomponent, Beijing can indirectly attract higher-value manufacturing to its shores. As analyst Noah Barkin observes, non-Chinese magnet suppliers exist but struggle to compete on price and scale, leaving Western automakers few immediate alternatives, according to Reuters.

Other Workarounds and Long-Term Strategies

In parallel with exploring Chinese production, automakers are scrambling to mitigate the magnet shortfall through other means. Some are scouring for alternate magnet sources in Europe, Japan, and elsewhere. But so far, no other country can match China’s capacity, and any minor suppliers in allied nations are quickly being overwhelmed by demand. A few companies have begun stockpiling rare-earth magnets where available per Reuters,  though China appears intent on preventing Western firms from building large reserves.

German auto lobby president Hildegard Müller noted that while “some licenses have now been granted” after diplomatic pressure, it’s “not enough to ensure smooth production”, and if the situation doesn’t ease, “production stoppages can no longer be ruled out” as cited in Mint. (opens in a new tab)

Another stopgap is to revive older motor technologies that don’t use rare-earth magnets. Prior to the dominance of neodymium magnet motors, EVs and hybrids sometimes used induction motors or ferrite magnet motors, which require no scarce elements. Some automakers have considered reverting to these designs to conserve rare earths. However, the trade-offs are steep: the newer magnet-based motors are smaller, lighter, and more efficient, so reverting to the older design would reduce vehicle performance and range.  Likewise, ramping up production of gasoline models (which use fewer rare-earth magnets) isn’t a viable solution – it would clash with emissions rules and EV mandates. In the U.S., producing more gas guzzlers to save magnets could trigger penalties under federal fuel-economy standards, especially since automakers can no longer buy regulatory credits (e.g., from Tesla) through 2027 to offset excess emissions. In short, there’s no easy substitute for high-performance magnets without incurring other costs.

Over the longer term, the magnet crisis is serving as a wake-up call. Both industry and governments are investing in reducing dependency on Chinese rare earths. Automakers, including GM, BMW, and Ford, have poured funds into developing rare-earth-free motors or new magnet materials, but most of these innovations are years from mass production.

New rare-earth mines and processing facilities are being launched in the U.S. (e.g., projects in California, Wyoming, Texas, and Nebraska), as well as in allied countries. Additionally, a magnet factory in Texas is under construction with the support of the government. These efforts, under initiatives like the U.S. Defense Production Act (opens in a new tab) and the EU’s Critical Raw Materials Act (opens in a new tab), aim to diversify supply – yet they will take time to scale up and close the gap with China. In the interim, China’s export policy has proven to be a powerful bargaining chip.

The Road Still Runs Through Beijing

The rare earth magnet crunch has forced a reckoning across the U.S. auto industry. Even as diplomatic overtures offer short-term reprieve, the deeper truth remains: China’s grip on critical magnet supply is now codified in export controls, not just informal leverage. For all the rhetoric about reshoring and decoupling, American companies are now contemplating the unthinkable: moving high-value production to China just to secure the tiny magnets that make modern mobility possible. This is not a supply chain—it’s a geopolitical chokehold. Unless the U.S. and its allies invest boldly in magnet manufacturing, materials innovation, and redundant supply networks, the most sophisticated cars built in America may still depend on permissions granted in Beijing. The crisis has exposed more than a materials gap—it’s a strategic vulnerability with global stakes. And unless that lesson is met with action, the engine of the American auto sector may be forever tuned to the rhythms of China’s industrial policy.

Sources: Rare Earth Exchanges multiple interviews and articles, Auto industry and trade reports on China’s rare-earth export curbs and company responses; Reuters, Live Mint, news of Ford’s production stoppage and industry warnings, and expert analyses of the rare-earth supply chain and workaround via AnewZ