Concerned carmakers race to beat China's rare earths deadline

By Nick Carey and Christina Amann

LONDON/BERLIN, Oct 21 (Reuters) - Global automakers are scouring the globe for crucial rare earths ahead of looming Chinese export controls, with executives worried they could lead to parts shortages and plant closures.

Rare earth magnets power motors in car parts such as side mirrors, speakers, oil pumps, windshield wipers and fuel leakage and braking sensors. They play an even bigger role in EVs.

While a U.S.-China deal diverted a supply threat, stockpiles were depleted by similar restrictions earlier this year, while Beijing has also made it harder to get export licenses.

China has since dramatically expanded export curbs, with companies facing global supply shortages.

Consultancy AlixPartners estimates China controls up to 70% of global rare-earths mining, 85% of refining capacity and about 90% of rare-earths metal alloy and magnet production.

The new Chinese export control list includes elements like ytterbium, holmium and europium, also used in making cars.

"The situation is very tense," said Nadine Rajner, CEO of German metal-powder supplier NMD, adding customers want to source rare earths from anywhere but China.

As part of efforts to counter Chinese dominance, on Monday President Donald Trump and Australian Prime Minister Anthony signed a critical minerals agreement that includes U.S. investments in rare earth mining projects in Australia.

NMD's Rajner said that while there are plenty of rare earths available in countries like Sweden, they do not have the mines or refining capacity to make them usable. And for heavy rare earths, China controls 99.8% of global refining capacity, making alternative sources negligible.

"We are pretty much sold out and have limited stocks," Rajner said.

Rare earths can be recycled from old cars, but that industry is in its infancy. Neutral, a Renault-backed company, currently recycles rare earths from 400,000 cars a year in France and has contracts with 15 brands in Europe.

But "the challenge is scaling up these activities," said Neutral CEO Jean-Philippe Bahuaud.

'ALREADY BEEN DEPLETED'

Even if Chinese suppliers can fulfil fresh orders before the November 8 export controls take effect, the journey by sea to Europe can take 45 days and the threat of a rare earth bottleneck is among several headaches facing the auto industry.

China has also placed export restrictions on lithium-ion batteries and battery materials, triggering concerns over parts supplies for electric vehicles.

And last week, an intellectual-property dispute between China and the Netherlands involving little-known Dutch chip-maker Nexperia, sparked fears of factory closures because it supplies a large amount of chips car parts and components.

Automakers also face the challenge of U.S. tariffs and are expected to detail the costs in their third-quarter earnings.

But China's hold over the industry through its control of rare earths ranks among the thorniest problems.

"They can shut us down in two months, the entire auto industry," said Ryan Grimm, Toyota Motor's 7203.T North America group vice president of purchasing supplier development.

Bruno Gahery, president for France, Benelux, West and South Europe at supplier Bosch ROBG.UL, said he expected the autos industry to "overstock rare earths" ahead of the deadline.

But an executive at a magnet supplier for Hyundai 005380.KS said that while it built inventories earlier this year, "most have already been depleted" and supplies are tight.

Some Chinese rare earths exporters received a rush of orders from overseas clients immediately after new export controls were announced on October 9, three industry sources told Reuters.

RARE EARTH FREE MOTORS

Automakers are taking steps to reduce their reliance.

Some such as General Motors GM.N and major suppliers such as ZF ZFF.UL and BorgWarner BWA.N are developing EV motors with low-to-zero rare-earth content, while BMW BMWG.DE and Renault RENA.PA have produced rare earth-free motors.

Monumo has used AI and deep-tech simulation to help clients cut rare earth content in motors already in production, which CEO Dominic Vergine said has led to an average reduction of 24% among the UK firm's customers, which include several of the world's top 10 carmakers, he said.

Automakers are also pushing hard to improve rare earth-free motors for the next generation of EVs.

Yet most of those motors are years away, as are efforts to develop new rare earth mines and processing plants outside China, which Beijing can undermine by keeping prices low, industry experts say.

Experts say the U.S government is taking the threat far more seriously than Europe.

Andy Leyland, co-founder of supply chain specialist SC Insights, said Beijing has focused on beating others on price and will continue to do so.

"The Chinese can always undercut them," he said of efforts to develop rare-earth free motors, adding that faced with cheaper motors with rare earth magnets automakers may find it hard to justify more expensive components.

"So it's a really risky investment."

Meanwhile, China is expected to keep exerting its power over supplies of rare earths.

"This is not the end of export controls," said Jan Giese, a senior manager at rare-earth trader Tradium.