China’s secret switch to shut down our auto industry

Welcome to Issue #71 of The German Autopreneur!

60 Chinese government officials. That's all it takes to paralyze the Western car industry.

Donald Trump raises tariffs on Chinese goods. China responds with export controls on rare earth materials. And suddenly, Western auto plants could be shut down.

The problem? No rare earths means no magnets. No magnets means no electric motors. And that means no cars, smartphones, or fighter jets.

Here's how serious this is: Trump moved heaven and earth last Thursday to get Xi Jinping on the phone. For the first time in his current term. The only topic? Rare earths.

This reflects a bigger problem: The era of free global trade is ending. Economic decisions are increasingly dictated by geopolitics.

Today we'll look at what this means for Europe. And how our dependencies could suddenly become existential threats.

What triggered the current crisis?

It all started in April 2025. Trump raises tariffs on almost all Chinese goods. China responds with counter-tariffs. But also with export controls on 7 rare earth elements.

Initially, China stops all exports completely. Later, Beijing introduces a complicated licensing system instead. To this day, only 25% of applications get approved.

Here’s the crazy part: Only 60 employees work at the responsible Chinese agency. Of those, only 3 officials can sign approvals. And the agency has strict office hours: 8:30 to 11:30 AM and 2 to 5 PM. It looks like China built this bottleneck on purpose.

They justify this measure with national security: The metals could be used for military purposes. In reality, they're China's leverage in the trade conflict.

Not only against the US. But also against Europe.

The EU is currently negotiating with China about lifting tariffs on Chinese EVs. And having a monopoly on these materials gives China serious leverage.

What are rare earths?

The name is misleading. They're not actually earths, but metals. And they're not really rare either.

The problem is: They never occur in high concentrations. You have to process tons of rock to extract even small amounts.

China owns about one-third of global reserves. Other major sources include Brazil, Vietnam, and Russia.

But getting it out is messy and pollutes the environment:

• The earths get mined and crushed

• Then it’s treated with strong acids

• Separating them takes over 100 steps

• Each ton of metal creates up to 2,000 tons of toxic waste

For decades, the West was happy to let China handle this "dirty work". And that’s how we became so dependent.

China controls 70% of the world’s mining and 90% of its processing.

Why this matters for the car industry

Rare earths are needed for incredibly strong magnets. We’re talking 15 times stronger than regular iron magnets. And much lighter.

Such powerful magnets are used for electric motors. And cars are packed with electric motors:

• EV drivetrains

• Power steering systems

• Windows

• Seat controls

• Wipers

• Braking systems

A typical luxury car today has up to 70 small electric motors. Nearly all need rare earths magnets. A single car seat alone can have 12 magnets.

European supplies are running low

This feels like the chip shortage all over again. Current supplies only last a few more weeks.

The German car association (VDA) warns that production could stop if this continues.

Suppliers are getting hit first. The European Association of Automotive Suppliers (CLEPA) already reports shut-downs of production lines.

Automakers are responding:

• BMW says suppliers are struggling, but keeps production running

• Mercedes is stockpiling parts wherever possible

• VW claims everything’s fine, but watches suppliers closely

We’re already seeing the impact: Ford had to close its Chicago plant for a week. The reason? Missing magnets.

Rare earth prices have jumped 40-50%.

And the Chinese licensing system is a black box.

An insider says: "You might get approval today. But tomorrow they stop everything over some paperwork issue. Companies have to hand over sensitive data, just to apply.”

Companies are getting desperate

Some automakers are thinking about moving production to China. Here’s why: China tightly controls rare earth exports. But finished components with magnets built in? Those can leave China much easier.

The irony is brutal. This trade war was supposed to bring jobs back to the West. Instead, it migth even push more production to China.

Companies are trying different approaches. BMW now builds some EVs with magnet-free motors. They cost more but don't need rare earths. Problem is, BMW still needs these materials for dozens of other motors throughout the car.

The West can’t do much about it

Europe is completely dependent. Two-thirds of Germany’s rare earths come from China. For some elements, it's 100%.

The EU and US are pushing for a solution. Officials call it an "alarming situation." But China holds all the cards.

Experts say it would take 15-18 years to build enough production outside China.

And it's not just about cars. No rare earths means no wind turbines. No smartphones. No submarines or fighter jets.

Germany knows this pattern. We've been here before:

• Russian gas

• Computer chips

• EV batteries

Now we're having the same fight over US software and AI.

Free trade is dying. Strategic dependencies have become weapons.

What needs to be done now

Europe has started moving. The EU's "Critical Raw Materials Act" sets targets:

• 10% of critical materials from domestic production by 2030

• 40% processed in Europe

But that's not enough. And it's too slow.

We need a complete strategy:

• Build strategic stockpiles like Japan (they keep 18 months of supply)

• Fund alternatives like BMW's magnet-free motors

• Stop putting all eggs in one basket - diversify suppliers

• Recycle rare earths from old phones and cars

My Take

In Germany, we love saying: “Let the market decide”. Keep politics out of business.

That world is gone.

Free trade is dead. We're now in an era of economic warfare. Countries use trade as a weapon.

Look around. China plans decades ahead. The US fights aggressively for its interests. The idea of pure free markets? It's fantasy.

Yes, building independence costs money upfront. But staying dependent? That's far more expensive, as we're learning right now.

We need to think like investors, not accountants. Stop chasing quarterly results. Start planning for the next decade.

The clock is ticking.

🔗 aiv1 | bl1 | bl2 | bl3 | bl4 | bl5 | bl6 | bl7 | bl8 | bl9 | cn1 | el1 | el2 | faz1 | faz2 | faz3 | ft1 | nyt1 | nyt2 | re1 | re2 | re3 | re4 | sc1 | sc2 | sp1 | wa1 | wsj1 | ap

That's all for today.

Feel free to reply to this email with your thoughts.

Until next week,
— Philipp

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