OEMs: Rethinking Rare Earth Supply as China Tightens Exports

Original equipment manufacturers (OEMs) are shifting their rare earth element (REE) sourcing strategies as pressure mounts from both geopolitical tensions and shifting export rules.

China continues to dominate global REE supply chains, but that dominance now comes with complications—and other countries are reacting.

With export restrictions tied to international relations and rising demand from industries like defence, EVs and electronics, manufacturers are making new moves to secure materials essential to their operations.

Licensing changes cause supply concerns

China introduces a licensing system for rare earth exports, citing sustainability and regulatory enforcement. The new framework means exporters now need official approval to ship REEs abroad.

China currently produces around 90% of the world’s rare earths. Of that, 60% comes from mining within China and the country also handles 90% of global REE processing. These elements are essential to the defence, energy, electronics and EV sectors, where they are used in everything from permanent magnets to thermal systems.

The licensing shift is widely viewed as a reaction to US President Donald Trump’s tariff increases. The US has only one operating rare earth mine and relies heavily on Chinese processing.

While the original aim of the tariffs was to recalibrate global trade imbalances, the Chinese response has added friction to an already delicate system.

This single-supplier reliance has proven risky, as any changes to China’s export conditions can instantly affect OEMs around the world. That impact is now being felt across the supply chain. The need to rethink sourcing is no longer theoretical—it's immediate.

The new regulations are already affecting OEMs globally. Automotive manufacturers, especially in the US, are beginning to feel the pressure.

In June, Ford had to halt production temporarily due to material constraints. Speaking to the implications, three major US OEMs raise concerns over the impact of the new restrictions on the EV supply chain.

While China has approved export licences again for automotive applications, the relief is only partial.

A temporary six-month license simplification has been agreed between Washington and Beijing, giving US OEMs a short-term fix, but the underlying issue of dependency remains.

Automotive manufacturing under strain

The EV sector depends heavily on specific rare earths—especially neodymium, dysprosium and terbium. These materials are used to produce permanent magnets that help manage heat in traction motors, the driving force of both battery electric vehicles (BEVs) and hybrids.

Of the 17 rare earths used across various industries, seven are facing increased scrutiny. Two - dysprosium and terbium - are critical for the automotive sector. If access to these materials tightens, production lines could face long-term disruption.

Although China's licensing approvals bring short-term relief, the incident exposes how fragile the global REE supply chain has become.

The automotive sector, already under pressure from consumers pushing for cleaner energy and greener transport, must now also navigate the volatility of international sourcing.

Some OEMs are actively working to change the equation. As reliance on REEs grows more complicated, alternative technologies are being explored.

In Europe, there’s a push toward externally-excited synchronous motors (EESM), which replace rare earth magnets with copper coils. Both Renault and BMW now use EESM technology, and projections suggest that by 2035, 41% of European motors will follow suit.

Mining interest rises beyond China

To reduce exposure to Chinese exports, OEMs and governments are now investing in domestic mining and refining. North America and India are both prioritising new infrastructure, though this comes with high costs and long lead times.

Rebuilding rare earth supply chains outside of China is no quick task. China's existing infrastructure, experience and economies of scale make it difficult to compete directly.

Still, countries are pushing forward. In Europe, while mining interest exists, much of the focus remains on adapting technology to reduce REE dependence altogether.

The goal is regional control over the materials that power everything from smartphones to electric cars. This doesn’t just mean mining the materials—it also means investing in processing and refining, which are areas China currently dominates.

REE investments aren’t just about immediate disruption. The broader aim is to prepare for sustained demand, especially as green technology adoption rises. Whether through mining or motor design, OEMs are now being forced to think long-term. Their supply chains, and their futures, depend on it.

As one outcome of the licensing dispute, OEMs are left scrambling for solutions. The experience has served as a wake-up call to industries across the globe.

Though China resumes shipments for now, the scramble to diversify is far from over.