Business

Disruption in the German Automotive Assembly Line

The shortage of Chinese rare earths puts the German economy on alert

June 10th, 2025
Esther Guinea Lozano, News from Berlin
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"We are facing a metals crisis, similar to the energy crisis of 2022, when Russia stopped supplying gas." This was the declaration of Wolfgang Niedermark, Director of the Federal Association of German Industry (BDI), on the potential impact the current trade battle, accentuated by China, could have on the main engine of the German economy. Additionally, Niedermark appealed to the automotive industry, which includes automobiles, machinery, energy, and safety technologies, as the most affected sector within the German economy.

Since April 4, 2025, following the harsh restrictions imposed by the U.S. on exports of chips and high-spectrum technology toward China, the Asian giant has decided to counteract the American threat by implementing restrictions and obstacles in the process of exporting and acquiring rare earths. These regulations entail the establishment of a new licensing regime that requires foreign corporations to obtain governmental approval to export these raw materials. These minerals include samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium, as well as derived magnets.

Furthermore, since the introduction of the new inspection system in April, China has only approved a quarter of the permit applications, according to the European Automotive Equipment Manufacturers Association (CLEPA). The organization also described the relevant procedures as opaque and inconsistent across provinces, as these bureaucratic hurdles often require the disclosure of sensitive information from the applicant entity, violating intellectual property rights.

China holds a monopoly on more than two-thirds of worldwide rare earth extraction, as well as 92% of its refined production. Despite falling within a context of a trade war, China claims that the imposition of these restrictions responds to a need for national security due to the dual use (civilian and military) of rare earths. While the tightening of restrictions is primarily aimed at countering the unprecedented offensives of the U.S. power, several markets are reeling from these reinforcements. One of them is Germany. The latter is well known for being the leading automobile manufacturing and exporting nation, both in the regional and international scenario. So much so that it is the leader in the European market and among the top four most productive countries globally.

In this sense, the situation in Germany is urgent. Mercedes-Benz, BMW, and Volkswagen, three of the most important automobile manufacturers in the country, could be at their capacity limit. According to expert Christian Grimmelt, a consultant at Berylls by AlixPartners, the last remaining reserves could be exhausted in the final weeks. Automotive companies could be forced to halt production, which would lead to a major economic crisis.

Overall, Chinese rare earth shortages pose a long-term threat to the German automotive and technology industries. The global economy has been plunged into a spiral of unexpected trade tensions from which no country has emerged or will emerge unscathed, including the world’s automobile capital. Ultimately, China's forceful stance and the unpredictability of the United States will define the course of the economy at the regional and international level.

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