Chinese magnets are the next automotive supply chain crisis
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Illustration: Aïda Amer/Axios
A shortage of rare earth magnets from China could become the next version of the auto industry's semiconductor crisis.
Why it matters: The magnets are used in everything from electric motors to windshield wipers, power seats and headlights.
- Without them, auto production could shut down within weeks, according to a letter to the Trump administration from industry groups representing major automakers and parts suppliers.
Driving the news: Rare earth magnets, also crucial for weapons, semiconductors and telecom equipment, are at the heart of the escalating trade war between the U.S. and China.
- The Trump administration is accusing China of withholding precious rare earth minerals and magnets as a tariff negotiating tool.
- That's the real reason Secretary of State Marco Rubio abruptly announced plans to cancel the visas of all Chinese students in the U.S., Axios' Marc Caputo reported.
The intrigue: Automakers are racing to find workarounds, including producing electric motors in Chinese factories or shipping made-in-America motors to China to have the tiny magnets installed, the Wall Street Journal reported.
- Or, they could look to buy magnets through sources in Europe or Asia, rather than purchasing them directly from Chinese factories.
- Any such moves could mean a tradeoff between higher tariffs or shutting down production.
- Ford Motor already had to temporarily stop building Explorer SUVs last month because it ran short of rare earth components.
Zoom in: Carmakers could also resort to stripping out premium features like adjustable seats or high-end speaker systems that use rare earth magnets.
- It's a strategy they used during the pandemic, when supply chain disruptions led to a shortage of semiconductors.
What to watch: The U.S. is trying to reduce its dependence on China for rare earths, but that could take a decade or more.
- In the meantime, China, which processes 70% of the world's rare earths, has the U.S. over a barrel.
