German Companies Facing Shortages of Rare Earth Elements from China

German industries are increasingly worried about potential shortages of rare earth elements (REEs) due to strict export controls imposed by China. These materials, although making up a small component in many products, are essential for various technological applications. The situation is particularly critical for heavy rare earths, where China controls approximately 70% of global production capacity.

Christian Grimmelt, a consultant at Alixpartners, highlighted the significance of these materials, especially for the production of permanent magnets used in electric motors. Most automotive manufacturers rely on these magnets, which are vital for vehicle assembly despite their minimal weight contribution. Grimmelt warned that the situation surrounding rare earths could escalate into a crisis similar to the previous chip shortage.

In response to ongoing trade tensions, China initiated export controls on seven rare earth elements and magnetic materials in early April, which also affects German firms. According to the EU Chamber of Commerce in Beijing, hundreds of European companies are impacted. One of the main issues is the backlog of export applications with Chinese authorities, leading to delays in processing.

Mercedes-Benz has stated that it is evaluating the current requirements and maintaining communication with its suppliers. The company views the recent increase in the issuance of export licenses as a positive development. Mercedes has adapted its procurement strategy to enhance flexibility and mitigate risks associated with global supply chain disruptions, especially in light of lessons learned during the COVID-19 pandemic.

Volkswagen and BMW have reported no immediate impact on vehicle production, stating that the supply of components containing rare earths remains stable and operations are proceeding as planned. However, both companies acknowledge that parts of their supply networks may be affected by the new Chinese export regulations, and they are in close contact with their suppliers to identify any potential supply risks.

Other sectors are also feeling the strain. ZF, an automotive supplier, relies on components that require rare earths for their manufacture. A spokesperson indicated that initial effects are being observed in the supply chains of some suppliers, and depending on the duration for granting new export licenses, there could be short-term disruptions.

The challenges related to rare earth shortages are not confined to the automotive industry. Wolfgang Weber, Chairman of the Executive Board at the Association of the Electrical and Digital Industry (ZVEI), noted that the scarcity of these elements is escalating and posing increasing challenges for companies across various sectors. He urged the EU Commission to take more decisive action to address these issues.

Oliver Richtberg, Head of Foreign Trade at the Association of German Machinery and Plant Engineering (VDMA), confirmed that they are in contact with affected companies. He mentioned that while the number of companies impacted is relatively small, the nature and intensity of the effects vary significantly from case to case.