New Curbs on Rare Earth Exports from China Could Disrupt EV Motor Supply

China’s rare earth export restrictions spark supply chain concerns for EV manufacturers worldwide as magnet stockpiles could deplete within months. Learn how these curbs impact the automotive industry.

China’s Rare Earth Curbs Send Shockwaves Through EV Supply Chains

Are you ready to understand how China’s latest export controls could reshape the global electric vehicle landscape? In a move that has sent ripples through the tech world, China announced significant export restrictions on rare earth minerals earlier this month, threatening to disrupt EV motor production worldwide and raising concerns across European, Japanese, and Taiwanese automotive industries.

What’s Happening with China’s Rare Earth Controls?

On April 4, 2025, China implemented export controls on seven critical rare earth elements—samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium—along with related products such as permanent magnets. While not constituting a complete ban, these new regulations require companies to obtain special export licenses, potentially causing significant delays in shipments.

This strategic move targets “heavy” and “medium” rare earth elements crucial for producing high-performance magnets that can withstand high temperatures—components essential not only for military applications but also for engines and transmissions in electric and hybrid vehicles.

China’s dominance in this sector cannot be overstated. When it comes to heavy rare earth processing, China controls an estimated 99% of global production, giving it unprecedented leverage over international supply chains.

Immediate Impact on Global Automotive Industries

The restrictions have triggered alarm bells throughout the automotive industry. Most automakers and their suppliers reportedly maintain only two to three months’ worth of magnet inventories, creating a ticking clock scenario that could lead to production disruptions by mid-summer if the situation isn’t resolved.

Countries like South Korea, which imports approximately 50% of its rare earth materials from China, are particularly vulnerable. While Korea’s industry ministry reports having about six months of public reserves for critical metals such as dysprosium (used in EV motors), experts suggest this falls short of the one-year strategic reserve needed to weather such disruptions effectively.

European automakers face similar challenges. Companies like Volkswagen, BMW, and Mercedes-Benz have been racing to secure alternative suppliers while attempting to maintain their ambitious EV production targets. Volkswagen recently announced it’s exploring partnerships with rare earth miners in Australia and Canada, though these operations would take years to reach full production capacity.

How Automakers Are Responding

Major automotive manufacturers aren’t sitting idle as this crisis unfolds. Toyota, which pioneered reducing rare earth usage in hybrid vehicles following the 2010-2011 supply shock, has accelerated development of its alternative motor technologies. The Japanese giant recently unveiled plans to increase production of its induction motors, which use no rare earth elements but trade some efficiency for supply chain security.

Tesla, meanwhile, has been hedging its bets for years. While its Model 3 and Model Y vehicles use permanent magnet motors, the company has maintained expertise in AC induction motor technology (used in earlier Models S and X). Industry analysts suggest Tesla could pivot more quickly than competitors if rare earth supplies become critically constrained.

Chinese EV manufacturers like BYD and NIO find themselves in a paradoxical position—potentially enjoying preferential access to domestic rare earth supplies while simultaneously facing export challenges for vehicles destined for European and American markets.

Historical Context: Lessons from 2010-2011

This isn’t the first time China has flexed its rare earth muscle. Between January 2009 and August 2011, the price of dysprosium oxide skyrocketed 26-fold, from $91/kg to $2,377/kg, following China’s earlier export restrictions.

The aftermath of that price spike proved transformative for the EV industry. Many manufacturers pivoted toward alternative motor technologies, with REE-free motors growing from less than 1% market share in 2010 to over 12% by late 2017—a textbook case of engineered demand destruction.

However, as prices stabilized, the industry largely returned to rare earth-powered motors, with 97% of all EVs sold since 2017 using them. The difference today is that the EV market has grown exponentially, making the potential disruption far more significant.

China’s Strategic Calculation

Unlike the blunt approach taken in 2010-2011, China appears to be wielding its resource dominance with surgical precision this time. Analysts suggest Beijing may initially target industries like defense contractors and drone makers, where rare earth scarcity could maximize disruption to Western rivals, while potentially sparing the EV industry from the worst effects—perhaps acknowledging China’s own substantial stake in the global green revolution.

The message is clear: China knows the power it holds and is learning to use it with increasing sophistication.

The Technology Behind the Crisis

To understand the full impact of these restrictions, it’s worth examining exactly why rare earth elements are so crucial to modern EVs. Neodymium-iron-boron (NdFeB) magnets, which contain several restricted elements, create stronger magnetic fields than any other commercially available magnets. This exceptional strength-to-weight ratio allows EV motors to be smaller, lighter, and more efficient—critical factors in extending vehicle range and performance.

Dysprosium and terbium, two of the restricted elements, are particularly valuable additions to these magnets because they significantly improve performance at high temperatures (where motors typically operate). Without these elements, magnets lose strength more quickly, reducing motor efficiency and potentially shortening vehicle range by 5-15%.

Alternative technologies exist, including:

1. Switched reluctance motors: These use no permanent magnets but have noise and control challenges
2. Induction motors: Tesla’s original choice, these are reliable but slightly less efficient
3. Reduced rare earth designs: Using less dysprosium through clever engineering and cooling systems

Each alternative comes with trade-offs in efficiency, cost, or manufacturing complexity that manufacturers must now recalculate in light of the new supply risks.

Expected Timeline and Long-Term Implications

While the ex-China market will likely face tightness in the coming months, experts predict supply chains will eventually adapt. Based on previous restrictions on elements like gallium and germanium, it typically takes around two months for supply to resume from China once export licenses are processed.

Most OEMs (Original Equipment Manufacturers) are believed to have at least two months of working stock in their supply chains, possibly more due to the criticality of these components. This buffer should provide some breathing room while exports normalize.

The Race for Alternative Supplies

The search for non-Chinese rare earth supplies has intensified dramatically. Australia’s Lynas Rare Earths, the largest producer outside China, has seen its stock price surge 18% since the announcement. The company recently accelerated expansion plans for its processing facilities in Malaysia and Australia.

In the United States, MP Materials has redoubled efforts at its Mountain Pass mine in California, aiming to vertically integrate from mining through magnet production by early 2026. The company recently secured additional Defense Department funding to expedite these plans.

Canada’s Vital Metals and Namibia’s Namibia Critical Metals have both announced accelerated exploration programs, though meaningful production from these sources remains years away.

Environmental Considerations

The rush to develop new sources of rare earths brings environmental challenges. Rare earth processing traditionally generates significant toxic waste, including radioactive byproducts. Western suppliers like Lynas and MP Materials face stricter environmental regulations than many Chinese operations, potentially increasing costs and timelines for scaling production.

Innovative processing technologies are emerging, however. American start-up USA Rare Earth claims its processing technique reduces water usage by 85% compared to traditional methods, while Canadian firm Geomega Resources has developed a recycling process for rare earth magnets that produces no toxic effluent.

In the long term, these restrictions are expected to spur renewed investment in rare earth production and magnet manufacturing outside China. Previous low pricing environments had stagnated development, but the heightened emphasis on supply chain security, coupled with potential price spikes, is likely to attract increased investor attention.

We’ve already seen examples of automakers securing their own rare earth supplies, such as when Hyundai and Kia signed a binding offtake agreement with Arafura in 2022. Such direct mine-to-manufacturer agreements will likely increase following these trade restrictions.

What This Means for the Industry