The global automotive industry is grappling with an unprecedented double shock: China’s tightened rare earth export controls and a wave of layoffs driven by transformation pressures. These converging forces are reshaping manufacturing supply chains, plunging Taiwan’s auto suppliers into heightened volatility and uncertainty.
Rare earth magnets are essential components in new energy vehicles, playing a critical role in applications such as electric motors, steering systems, and brake controls. “New energy vehicles” refer to vehicles that no longer rely on traditional gasoline or diesel internal combustion engines as their primary power source, instead utilizing electricity, hydrogen, or other alternative fuels. These vehicles not only showcase innovations in power sources but also integrate advanced technologies in their structures and control systems, serving as a cornerstone of the automotive industry’s transformation.
China, which controls over 90% of the global rare earth supply chain, has imposed export restrictions, creating production bottlenecks for European and American automakers and forcing some suppliers to halt operations. In early June 2025, China’s implementation of a rare earth magnet tracking system heightened Western markets’ anxieties over stable rare earth supplies. Amidst U.S.-China trade negotiations, major American automakers, including General Motors, Ford, and Stellantis, have experienced a significant slowdown in production momentum, potentially triggering large-scale layoffs and capacity adjustments.
This wave of layoffs is not solely driven by economic pressures but also signals the prelude to a structural transformation across global automakers. Volkswagen plans to cut over 35,000 jobs in Germany over the next decade, with Nissan and U.S. automakers initiating similar streamlining efforts to reallocate resources toward electrification and software technology upgrades. Amid waning demand in traditional automotive markets, high interest rates, and inflation, global automakers are accelerating their shift toward new business models centered on electric, shared, and autonomous vehicles.
Against this backdrop, Taiwanese suppliers within the supply chain are inevitably affected. Taiwanese component suppliers, deeply tied to European, American, and Japanese automakers, particularly in engines, transmissions, and mechanical control modules, face dual pressures from reduced orders and inventory drawdowns. As automakers tighten their budgets and intensify cost controls, price pressures on suppliers increase, risking unfavorable price competition for Taiwanese firms that lack differentiated technological solutions.
However, crises often harbor opportunities. The global trend toward automotive electrification offers Taiwanese suppliers new growth opportunities. Key components such as motor controllers, battery management systems, in-vehicle communication chips, and AI vision systems align with Taiwan’s strengths in electronics manufacturing. In recent years, numerous Taiwanese firms have developed design and integration capabilities through the co-development of electric vehicle platforms with European, American, and Japanese automakers or by participating in Hon Hai’s MIH open platform. This shift from contract manufacturing to joint development enhances value-added output, strengthens partnerships with automakers, and prioritizes supply chain risk management as a strategic focus.
In response to China’s rare earth export restrictions, several Taiwanese firms are seeking alternative sources from countries like Australia and Canada while investing in non-rare-earth materials, such as diluted magnetic alloys and advanced ceramics, to reduce reliance on a single supply source. Furthermore, some Taiwanese firms are enhancing their branding and product definition capabilities, transitioning from traditional Original Design Manufacturing (ODM) to Joint Development Manufacturing (JDM) or Contract Design and Manufacturing Services (CDMS). By actively participating in vehicle product development, these firms strengthen their bargaining power and influence.
The pace of innovation in the automotive industry is accelerating. Whether through Volkswagen’s collaboration with China’s XPeng on shared charging infrastructure or Toyota’s Connected, Autonomous, Shared, Electric (CASE) strategy, automakers are evolving into providers of interconnected, automated, shared, and electrified mobility solutions. During a recent business trip to Hsinchu, a conversation with a taxi driver en route to the ITRI revealed that she drives a Toyota plug-in hybrid vehicle. She described the car as highly user-friendly, with convenient refueling, partial autonomous features, and silent operation at traffic lights, offering both environmental benefits and practicality. This reflects Toyota’s steady progress in its customer- and employee-centric transformation. If Taiwanese firms can swiftly capitalize on the electrification trend, they can move beyond cost-driven survival and secure high-value positions in the global value chain.
In summary, while global automaker layoffs and rare earth restrictions pose challenges to Taiwan’s automotive supply chain, they also present an opportunity for strategic repositioning. Only by proactively transforming, advancing technological expertise, strengthening international partnerships, and diversifying supply chain risk management can Taiwanese firms turn crisis into opportunity while seizing a competitive edge in the future automotive market. The key to this supply chain transformation lies not in merely enduring the challenges but in preparing strategically to embrace the next wave of growth.
Author: Ming-Hui Liao, Associate Researcher, Chung-Hua Institution for Economic Research Source: China Times, A10/Hainabichuan, June 10, 2025