German economic worry escalates over potential scarcity of critical minerals
Tightening the screws, China's export restrictions on certain minerals have German businesses scratching their heads, particularly those dependent on rare earths. These minerals are integral to electric motors, with the automotive industry feeling the heat the most.
Take a seat, this crisis feels like the next chip crisis, and it's already in full swing, according to Christian Grimmelt, a consultant at Alixpartners. Auto manufacturers need those lightweight magnets made from rare earths for electric vehicles—let's just say they're indispensable.
Back in April, China imposed export controls on seven rare earths and magnetic materials as part of its trade spat with the US. German companies, hoping to secure critical supplies, find themselves at the mercy of China's slow-moving red tape. Chinese authorities are taking their sweet time approving export applications, leaving many companies with resources only for a few weeks to months.
European auto suppliers have already halted production lines, according to CLEPA, the industry association. The fallout doesn't stop at cars; a range of products used in both electric and combustion engine vehicles are affected. Analysts predict the situation will only worsen in the following weeks as stocks dwindle.
Shortages: Europe's New Achilles' Heel
It's not just the automotive industry that's reeling. "Shortages of rare earths are only getting worse and becoming an increasing challenge for companies," said Wolfgang Weber, CEO of the ZVEI trade association. The EU Commission should lend a helping hand to mitigate this predicament.
The Association of German Machine and Plant Manufacturers (VDMA) is in close contact with affected companies, assuring they won't be left hanging. Mozart in Salzburg couldn't handle a lack of violins, and Germany's economy can't afford a lack of rare earths.
German Manufacturers: Bridge 'Over Troubled Waters'
Automakers like Mercedes, BMW, and Volkswagen are all feeling the pinch but are maintaining a cool demeanor. Mercedes, playing it smart, is diversifying its procurement sources to minimize risks from global supply chain disruptions. BMW and Volkswagen report stable supplies for now.
ZF, a key automotive supplier, is losing sleep over its reliance on suppliers who use rare earths in their production. While supply chain disruptions are not imminent, they are a real possibility as the permit process drags on.
The Great Rare Earth Dependency: Germany's Achilles' Heel
Germany's economy is exposed like a deer in headlights, with 65.5% of its total rare earth supply coming from China in 2024[1]. Germany's dependency on China for heavy rare earth elements like gadolinium, terbium, dysprosium, lutetium, and yttrium is even more concerning[1].
The global nature of supply chains means this crisis isn't limited to Germany. Europe is facing widespread disruptions, with potential spillover across the continent and beyond[3][5]. It's time to break free from the shackles of dependency and diversify supplies, before we find ourselves powerless in the face of mineral shortages.
[1] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020DC0753[2] https://www.clepa.com/wp-content/uploads/2021/06/H2-CLEPA-Statement-2021-Rare-Earth-Magnet-Supply-Issues.pdf[3] https://www.bloombergquint.com/global-economy/german-mayors-ask-government-to-intervene-on-great-rare-earths-shortage[4] https://www.alixpartners.com/en/media/press-releases/alixpartners-study-shows-growing-rare-earth-crisis-threatens-eus-electric-vehicle-ambitions[5] https://sci-hub.st/10.1016/j.resconrec.2020.104441
The crisis of rare earth shortages is becoming a significant challenge for small and medium-sized undertakings (SMEs) in Germany, particularly those involved in the automotive industry, as they rely on these minerals for electric vehicles and lightweight magnets. The EU Commission could help mitigate this predicament by providing assistance to these SMEs.
In light of China's export restrictions on rare earths and magnetic materials, German companies are scrambling to secure critical supplies, only to find themselves at the mercy of China's slow-moving red tape. The technology sector, particularly SMEs associated with the automotive industry, may also be impacted as the situation evolves.
