EV Metals Alert: How China’s Export Curbs on Rare Earths Could Impact Your Portfolio

China’s dominance in the rare earth element (REE) market has long been a topic of discussion, but recent export restrictions are sending ripples throughout the global economy, particularly impacting the electric vehicle (EV) industry. With demand for EVs soaring and REEs being critical components in their production, these curbs could significantly impact your investment portfolio.

The Rare Earth Element Landscape

Rare earth elements are a set of seventeen metallic elements that possess unique magnetic, luminescent, and electrochemical properties. Despite their name, they are not necessarily “rare” in terms of abundance, but rather, they are rarely found in concentrated and economically exploitable forms. These elements are essential for various high-tech applications, including:

Electric Vehicles (EVs): REEs are crucial for manufacturing high-performance permanent magnets used in electric motors, enabling greater efficiency and power density. In 2024, demand tied to EV motors reached 37 kilotons, and is expected to rise to 43 kt in 2025.
Renewable Energy: Wind turbines also rely on powerful magnets made from REEs for energy generation.
Electronics: Smartphones, laptops, and other electronic devices utilize REEs in various components.
Defense Systems: REEs are indispensable in advanced military technologies.

China has strategically dominated the REE supply chain for decades, controlling a significant portion of global mining, refining, and processing capacities. As of 2025, China accounts for roughly 63% of global rare earth mining and more than 85% of processing. This dominance gives China considerable leverage over the global supply of these critical materials.

China’s Export Restrictions: A Geopolitical Chess Move

In recent years, China has implemented export restrictions on certain REEs, citing national security concerns and a desire to protect its domestic industries. These restrictions take various forms, including:

Export Licensing: Requiring companies to obtain special licenses for exporting specific REEs.
Export Bans: Prohibiting the export of certain REEs or related technologies altogether.
Technology Restrictions: Limiting the export of technologies used in REE extraction, separation, and processing.

These measures are often viewed as a response to trade tensions with other countries, particularly the United States, and as a way to bolster China’s position in the global technology race. For example, in April 2025, China imposed export restrictions on seven REEs in response to US tariffs on Chinese goods.

Impact on the EV Industry and Your Portfolio

China’s export curbs on REEs have significant implications for the EV industry and, consequently, your investment portfolio:

Supply Chain Disruptions: EV manufacturers rely heavily on REEs for producing high-performance electric motors. Restrictions on REE exports can lead to supply chain bottlenecks, production delays, and increased uncertainty for EV companies.
Increased Production Costs: If alternative sources of REEs are scarce or more expensive, manufacturing costs for EVs will rise. This could impact the affordability of EVs and potentially slow down their adoption rate.
Geopolitical Risks: The concentration of REE supply in China creates geopolitical risks for EV manufacturers and investors. Any further escalation of trade tensions or political disputes could lead to further restrictions on REE exports, impacting the EV industry.
Impact on Automakers: The restrictions could impact automobile prices as REMs are a crucial element in making electric vehicles. Also import of complete parts instead of REMs could reduce domestic value addition by automakers which is a key requisite for incentives under PLI scheme.

Navigating the Challenges and Opportunities

Given the potential impact of China’s REE export curbs on your portfolio, it’s crucial to consider the following strategies:

Diversification: Diversify your investments across different sectors and geographies to reduce your exposure to the EV industry and REE-related risks.
Supply Chain Resilience: Favor companies that are actively working to diversify their supply chains and reduce their reliance on Chinese REEs. Look for companies that are investing in alternative sources of REEs or developing technologies that require fewer of these materials.
Alternative Technologies: Keep an eye on companies that are developing alternative motor technologies that do not rely on REEs. While these technologies may still be in their early stages, they could offer a long-term solution to the REE challenge.
Geopolitical Awareness: Stay informed about the latest developments in trade relations and geopolitical tensions between China and other countries. These events can have a significant impact on the REE market and the EV industry.
Consider ETFs: Thematic ETFs and sector funds provide bundled exposure to companies linked to critical minerals and related technologies. These products offer a diversified entry point to the theme without requiring detailed company-level analysis.

The Path Forward

China’s export restrictions on REEs present both challenges and opportunities for investors in the EV sector. While these curbs may create short-term disruptions and uncertainties, they also highlight the importance of supply chain resilience, diversification, and innovation. By carefully considering these factors and adopting a proactive investment strategy, you can navigate the evolving landscape and position your portfolio for long-term success.

The situation is dynamic, and it’s essential to stay informed about the latest developments in the REE market and the EV industry. Consulting with a financial advisor can help you assess your risk tolerance and develop an investment strategy that aligns with your specific goals and circumstances.