Global rare earths, before inventory is completely depleted

Questioning AI · Why Have Rare Earths Become an Indispensable Core in the Automotive Industry?

Written by | Li Hezi

Edited by | Huang Dalu

Design by | Zhen Youmei

On March 14, 2026, in Tokyo, Japan’s Minister of Economy, Trade and Industry Akazawa Ryo Masa sat face-to-face with U.S. Secretary of the Interior Deb Haaland.

This was the first ministerial-level meeting between the two countries focused on critical minerals, held in a closed-door format. According to an official from the Japanese government, both sides agreed to strengthen cooperation and promote diversification of the supply chain for critical minerals, including rare earths.

Haaland explicitly stated, “Critical minerals are indispensable in everyday life, such as in cars and mobile phones”; Akazawa noted that “over-reliance on certain regions or technologies poses risks”—a lesson learned.

Clearly, once again, both countries are pointing their fingers at China.

By 2025, China had twice upgraded export controls on rare earths, establishing a comprehensive management system covering the entire industry chain.

On April 4, 2024, the Ministry of Commerce, together with the General Administration of Customs, included seven categories of medium and heavy rare earths under export controls; on October 9, multiple notices were issued, adding five more types of medium and heavy rare earth elements to export restrictions, along with rare earth processing equipment and related technologies. For the first time, a “extraterritorial jurisdiction” mechanism was established: overseas organizations exporting Chinese-origin rare earth items (value share over 0.1%) to third countries must obtain Chinese approval.

This is considered the strictest rare earth export control measure ever issued by China, marking the first time China has established an export control system covering the entire rare earth industry chain with extraterritorial jurisdiction.

Although a series of announcements made in early October 2025 were suspended after the China-U.S. Kuala Lumpur consultations at the end of that month, the export controls on seven categories of medium and heavy rare earths implemented in April remain in effect.

An important background factor is that China controls about 90% of global rare earth processing capacity. Ryan Grimm, Vice President of North American Procurement at Toyota, privately estimated: in the worst-case scenario, China could halt the entire Japanese auto industry within two months, and the same applies to the whole automotive sector. This estimate was based on inventory levels at the high point of October 2025.

Now, half a year later, reserves are running low, and new supply sources have yet to emerge. The Tokyo meeting seems to confirm a common speculation—that affected countries will need three to five years to find alternatives.

Will they find substitutes before stockpiles run out, or will they lose competitiveness during the transition from old to new energy sources? Under the backdrop of China’s rare earth export controls, the global automotive industry is standing at a critical juncture.

The Two-Months Bottleneck

After China upgraded rare earth export controls on October 9, 2025, reactions from the overseas automotive industry were intense.

Initially, concerns about production stoppages spread. On the day the Ministry of Commerce issued a series of notices, procurement executives in Europe, America, and Japan immediately recognized the seriousness of the issue. By November 8—the deadline for the new regulations to take effect—numerous emergency memos had been circulated.

“The market situation is quite tense. Customers now want to source from any non-Chinese regions,” Nadine Rajner, CEO of German metal powder supplier NMD, told Reuters. Due to limited inventories, her company’s products were nearly sold out.

Panic quickly spread upstream in the supply chain to automakers. An executive from a company supplying magnets to Hyundai revealed that, although they had built up inventories earlier in 2025, most had already been consumed. Bruno Gahery, President of Bosch Europe, bluntly said that the auto industry would “stockpile madly” before the restrictions took effect.

Some Chinese rare earth exporters immediately received large overseas orders after the notices were issued. But even if suppliers could fulfill new orders before November 8, shipping to Europe would take about 45 days. This means there is nearly a two-month window from the announcement to the arrival of goods on the production line.

As early as mid-2025, with the implementation of export controls on four categories of medium and heavy rare earths in April, tensions in the supply chain had already begun to surface.

By late May 2025, Ford had to suspend production of its Explorer SUV at the Chicago plant for three weeks due to shortages of rare earth magnets.

Almost simultaneously, Reuters reported that the production line of Suzuki’s popular model “Swift” in Japan was halted because of late delivery of rare earth components. Suzuki stated that the missing parts mainly affected vehicle electronics and engine components, directly impacting production schedules.

India faced even greater difficulties. Also in late May 2025, the Indian Automotive Manufacturers Association issued a warning that inventories of rare earth magnets at parts suppliers were expected to run out that month.

At that point, four months remained before the October export restrictions were further tightened.

Some industry observers have called this rare earth supply crisis an “amplified version of the semiconductor crisis.” If chip shortages are a “stroke” to production lines, then rare earth shortages are a “heart attack.”

So, why can rare earths cause the entire automotive industry to come to a halt?

On May 9, 2025, the Automotive Innovation Alliance, representing major automakers like Toyota and Volkswagen, along with the Motor & Equipment Manufacturers Association (MEMA), sent a joint letter to the Trump administration warning: without stable supply of rare earth magnets, automakers would be unable to produce a series of critical components. The letter listed many key parts—automatic transmissions, throttle bodies, alternators, various motors, sensors, seat belts, speakers, lighting, power steering systems, and cameras.

A typical internal combustion vehicle contains dozens of micro-motors—rearview mirror adjustment motors, power window motors, windshield wiper motors, fuel pump motors, brake sensors, speakers… each powered by rare earth permanent magnets. The small size and quick response of these motors are thanks to NdFeB (neodymium-iron-boron) permanent magnetic materials.

In the field of new energy vehicles, the use of rare earths has grown exponentially.

For example, a Tesla Model 3’s drive motor uses about 2-3 kg of NdFeB. Other models or dual-motor versions may require even more. When including other magnetic components in the vehicle (seat motors, audio systems, sensors, etc.), the total rare earth consumption per EV can be about ten times that of a traditional fuel vehicle.

Consulting firm ARK estimates that China controls about 90% of the world’s rare earth metal alloys and magnet production capacity. This means that most electric vehicles on the road have “hearts” powered by Chinese rare earths.

The difficulty in replacing rare earth magnetic materials lies in their physical properties. NdFeB magnets have high magnetic energy density, enabling a 40% reduction in motor size and a 15% increase in efficiency. In tight engine bays or door panels, this performance advantage is irreplaceable. As an industry insider put it, as motors are squeezed into smaller spaces, rare earths become the only solution.

Therefore, when China began restricting exports of medium and heavy rare earths, the impact on the global auto industry was far greater than before. It’s not just about how long inventories can last, but about how long production lines can operate without alternative sources.

Why “Made in China” Cannot Be Avoided

After China announced further restrictions on October 9, 2025, the global auto industry quickly realized a harsh reality: they are not facing a single mine, but an entire industry chain.

China accounts for nearly 70% of global rare earth mining, with near-monopoly on heavy rare earths. But this is only superficial—China’s deeper control over rare earth resources extends through every stage, from ore extraction to magnet production.

A stark contrast is that, although the U.S. is the second-largest rare earth producer globally, with about 13% of total output, the rare earth ore from Mountain Pass—the only active rare earth mine in the U.S.—must still be sent to China for refining. Over 90% of global rare earth refining capacity is concentrated in China; without Chinese separation facilities, ore remains just ore, unable to become magnetic materials.

In high-performance NdFeB magnet production, China’s market share exceeds 90%. According to a research report by AVIC Securities, the key bottleneck in developing overseas rare earth industry chains is the separation and refining stage, which is hindered by a lack of technical reserves and is viewed by foreign companies as a “choke point.”

This means that without China’s refining capacity, most of the world’s electric vehicles would struggle to find high-performance magnets for their drive motors.

China’s technological lead in rare earths is rooted in a pioneering figure—Academician Xu Guangxian. His team’s cascade extraction theory, established in the 1970s, revolutionized China’s rare earth separation technology. Over decades, China has accumulated a series of major technological achievements in mining, smelting, and precision processing.

According to Google Patents and Espacenet, as of November 2025, over 70% of global rare earth patents are held by China, though only 15-20% are PCT international patents. Unverified reports also suggest that in 2025, Chinese companies accounted for 82% of new global rare earth patents, while the U.S. held only 7%.

This technological accumulation has created a “full industry chain hegemony.” An American industry insider summarized: “China didn’t win by mining alone; it built the entire system—from separation, refining, metallurgy, to magnet production—all interconnected.”

When these links are subject to export controls, foreign automakers face three major difficulties in finding alternatives:

1. Performance: The high magnetic energy density of rare earth magnets allows for smaller, more efficient motors. Alternatives like ferrite magnets are cheaper but have much lower magnetic density, requiring larger and heavier motors to match performance.

2. Cost: Data shows that Chinese rare earth permanent magnet motors cost about 60% of comparable foreign products. This cost advantage stems from the scale of the entire industry chain and decades of process improvements—something that cannot be matched by simply opening new mines. Industry observers note that China’s expertise in alloy smelting and processing is deep and extensive, making it difficult for competitors to catch up.

3. Time: A Goldman Sachs report in October 2025 pointed out that developing new rare earth mines takes 8-10 years, and building refining facilities usually requires 5 years. Beia Spiller, director of transportation projects at the Future Resources Institute, said in February that “investing in mining projects and processing plants in a very short time is extremely challenging, and progress will not be rapid.”

Explorations in some countries to develop alternative supply chains have demonstrated how difficult it is to overcome these three challenges.

Japan has been working on critical mineral diversification for over a decade. After the 2010 Diaoyu/Senkaku Islands dispute, Japan began promoting supply chain diversification. Despite years of investment, Japan’s dependence on Chinese rare earths has only decreased from about 90% to 60-70%.

The U.S. Department of Defense is investing in domestic rare earth industry. In July 2025, it announced a $400 million purchase of preferred stock in MP Materials to support expanding processing capacity and building new rare earth magnet factories, expected to start operation in 2028, increasing MP’s total magnet capacity from about 3,000 to 10,000 tons annually.

Private capital is also active. Niron Magnetics in Minnesota is building an iron-nitrogen magnet factory, with over ten years of R&D, aiming to start production in 2027.

The U.S. is also experimenting with AI to find substitute materials. Chinese scientist Zang Jiadong at the University of New Hampshire used AI to screen 25 non-rare-earth formulations, but as of March 2026, none have entered prototype testing.

Wei Shen, a researcher at the UK Development Studies Institute, pointed out that even if the U.S. can design new materials in labs, commercializing them requires solving issues of stability, large-scale production, and cost—building a complete industrial ecosystem cannot happen overnight.

Thus, a situation has emerged: Western countries are pushing for “de-China-ification” of supply chains while still relying on China’s refining capacity.

For example, MP Materials’ rare earths mined at Mountain Pass still need to be processed in China. Independent mineral analyst Chris Berry bluntly said, “We won’t solve this during Trump’s term; rebuilding a system takes more than ten years.”

The value of “Made in China” thus becomes evident—it’s not just about a single link, but the entire chain.

The “Reconstruction War” of Global Supply Chains

After more than half a year of import restrictions on rare earths, more countries are choosing to unite as a form of self-rescue and counterattack against China.

On March 14, 2026, the day after the Japan-U.S. ministerial meeting in Tokyo, the Japanese newspaper Sankei Shimbun revealed a more specific plan: Japan and the U.S. are coordinating to confirm joint development of rare earth resources near Minamitorishima, 1,800 km south of Tokyo, during the summit on the 19th, and to establish a marine mineral resource development working group.

Earlier reports indicated that, given Japan’s recent actions, China is considering tightening export licenses for rare earths to Japan.

Faced with the possibility of policy tightening from China, Japan’s strategy is to “bring the U.S on board.” The envisioned cooperation includes Japan providing mining and processing technology, with the U.S. offering funding support, jointly investing to sell processed rare earths to the U.S.

Minamitorishima is central to Japan’s hopes. In December 2025, Japan’s Agency for Marine-Earth Science and Technology announced plans to test deep-sea mud mining rich in rare earths in early 2026.

In February 2026, the exploration vessel “Chikyū” successfully collected rare earth-rich seabed mud from a depth of 5,600 meters. The official extraction trial is scheduled for February 2027, aiming to harvest about 350 tons per day.

But this takes time.

According to Nikkei, the technology for extracting rare earths from seabed mud is still in basic research, with extraction costs several times higher than the Chinese market price. Recovery, transportation, and the chemical separation of 17 elements (which alone involves at least 200 steps of solvent extraction) are not yet commercially viable.

This “encirclement” of China is not limited to the Pacific.

On February 4, U.S. Secretary of State Antony Blinken hosted the 2026 Critical Minerals Ministerial, attended by representatives from 54 countries and the EU. Within a day, the U.S. signed 11 new bilateral frameworks or memoranda of understanding on critical minerals, involving Argentina, Morocco, the Philippines, the UAE, and others.

Additionally, the U.S. International Development Finance Corporation has invested over $1 billion in overseas mineral exploration. Of this, $565 million is directed toward rare earth extraction in Brazil, with joint ventures in African trade entities securing 100,000 tons of copper. The Export-Import Bank has launched the “Treasury Project,” approving $10 billion in direct loans to establish domestic strategic reserves of critical minerals.

The commonality in these actions is shifting from “single-point breakthroughs” to “alliances,” with “small multilateral frameworks” replacing fragmented mineral competitions.

European countries are taking another approach—mimicking Japan.

In early March 2026, German industrial giants promoted the establishment of an organization similar to Japan’s integrated trading companies (sogo shosha) to ensure supply of key raw materials. BMW, Rhenium Metals, the German Automotive Industry Association, and the German Security and Defense Industry Association are all involved.

An insider involved in the plan said it is part of Germany’s long-term effort to learn from JOGMEC (Japan Oil, Gas and Metals National Corporation), representing companies to jointly purchase critical minerals and gain “greater bargaining power” in the market.

The cost of establishing such an organization is unclear, but sources suggest the total investment could reach hundreds of millions of euros. The federal government may hold minority shares, but no agreement has been finalized. Some German companies prefer direct cooperation with Japan, which has expressed willingness to expand this model overseas.

A BMW spokesperson told the Financial Times that supply risks require “coordinated action”; the German Automotive Industry Association said it is “regularly communicating” with industry and political partners about critical raw material supplies.

Australia’s Lynas is locking in markets through long-term agreements.

On March 10, Lynas disclosed that Japan Australia Rare Earths (JARE), a joint venture backed by the Japanese government and major trading firms, committed to purchasing at least 5,000 tons of praseodymium-neodymium oxide annually at a minimum of $110 per kilogram, with the agreement lasting until 2038. JARE also pledged to buy at least 50% of Lynas’s heavy rare earth output.

Lynas produced 6,375 tons of rare earth oxides from July to December 2025, a 19% increase year-over-year. The company plans to start separating samarium in April 2026 and aims to produce gadolinium, yttrium, and lutetium in 2028.

Beyond these “open-source” efforts, another self-rescue path is gaining traction—recycling. Compared to mining, recycling is not limited by geography and can bypass dependence on Chinese raw ore.

For example, in January this year, Schaeffler launched the ReDriveS project with 25 partners in Germany, aiming to develop industrialized, automated disassembly technology for electric axle drive systems. The project’s total budget exceeds €25 million, with €16 million from public funding, and a 36-month timeline.

The core of this project is recovering rare earth elements from NdFeB magnets. Schaeffler’s chief technology officer stated that through digital twins, automated disassembly, and high-quality recovery, they aim to “ensure raw material and supply chain security.”

A global “reconstruction war” of the rare earth supply chain is underway. Countries’ efforts differ, but their goal is the same: to find alternatives to China before stockpiles run out.

However, which side time favors remains uncertain—there is no clear answer yet.

China’s Future Cards

In response to the countermeasures from various countries, China’s reply lies in a different timeline—technological upgrading.

In early March 2026, Ao Hong, member of the National Committee of the Chinese People’s Political Consultative Conference and Vice President of the China Nonferrous Metals Industry Association and Chairman of the Rare Earth Branch, during the two sessions, defined China’s future rare earth industry direction: “The ‘strong upstream, weak downstream’ situation must change.”

This reveals a fundamental shift in China’s rare earth strategy—from resource control to technology control.

Over the past decades, China’s advantage has been concentrated in the front end of the industry chain: mining, separation, and smelting. Ao Hong’s data shows that currently, the application penetration of rare earth permanent magnet motors in China’s industry is less than 10%. This indicates that a large amount of added value remains untapped—compared to traditional motors, rare earth permanent magnet motors can save 10% to 50% of energy.

This also points to the development direction of China’s automotive industry: upgrading existing demand and occupying future demand.

On the current demand side, new energy vehicles remain the largest application for rare earths. This basic market will not change in the short term. But China is promoting “creating higher value with fewer resources”— breakthroughs in Ce-containing NdFeB technology allow partial substitution of the scarce praseodymium-neodymium with abundant cerium, reducing costs and maximizing resource advantages.

Changes are happening. On March 13, Inner Mongolia North Rare Earth announced investments exceeding 200 million yuan to build two 10,000-ton production lines—one for Ce-containing NdFeB magnetic materials, another for rare earth metal alloys.

On the future demand side, the boundaries of the automotive industry are being redefined. Emerging sectors like embodied intelligent robots and low-altitude economy share the same technological chain—drive systems, lightweight materials, etc.—all requiring rare earths.

In January 2026, Antai Technology revealed during institutional research that high-performance NdFeB magnets, as core components of robotic joint servo motors, have begun technical exchanges with several robot core component manufacturers, currently in market expansion and prototype validation stages.

CITIC Securities’ research predicts that by 2035, demand for NdFeB in humanoid robots and low-altitude economy could reach 33,000 tons—equivalent to creating another new energy vehicle market.

The low-altitude economy is also closely intertwined with the automotive industry. The demand for NdFeB in unmanned aerial vehicles is accelerating with the commercialization of eVTOL (electric vertical takeoff and landing) aircraft. Ao Hong mentioned that with the development of ship electric propulsion and magnetic levitation transit, high-performance rare earth magnets with high energy density, high-temperature resistance, and vibration resistance will see a significant increase. These technologies share the same origin as drive motor tech for new energy vehicles.

Additionally, in terms of regulation, China has established a comprehensive toolbox.

As previously mentioned, the Ministry of Commerce’s Announcements No. 61 and 62 in October 2025 extended export controls to “extraterritorial jurisdiction”: exports of Chinese-origin rare earth items (value share over 0.1%) to third countries, or rare earth items produced abroad using Chinese technology, require approval from China’s Ministry of Commerce.

This means that no matter how the global automotive supply chain is restructured, as long as Chinese rare earths are involved, China’s rules cannot be bypassed.

Although these measures are temporarily suspended until November 2026 following the China-U.S. Kuala Lumpur consultations, the legal framework has been established. Qi Monyun, partner at Jingtian & Gongcheng Law Firm, pointed out that global companies involved in the rare earth supply chain should establish compliance systems for China’s export controls during this period.

From being the “world’s rare earth warehouse” to becoming a “global rare earth technology hub,” China’s strategic positioning is undergoing a fundamental change. While the West is still spending a decade building a new mine, China has already locked in the industry’s next decade through technology.

For the global automotive industry, perhaps the harshest reality is: when inventories run out, substitutes may still not be available; and when substitutes finally emerge, China may have already advanced to a higher technological level.

Author’s note: Personal opinions only, for reference.