Recasts with detail on cancelled orders, further comment

By Victoria Waldersee

BERLIN, June 3 (Reuters) - China's export restrictions on rare earths that are widely used by the auto industry could disrupt, or even halt, German car production, Germany's VDA auto industry lobbying group said on Tuesday.

The comments mark the first time the lobby group has said output was at risk of being halted as a result of China's decision to limit exports of rare earth magnets. It did not specify a timeframe.

The auto industry, which needs the magnets for anything from windshield wiper motors to brake sensors, may struggle to keep production running smoothly, the head of VDA, Hildegard Mueller, said in a statement to Reuters.

Mueller said China has issued some permits to a handful of rare earth producers, including suppliers to Volkswagen - but not enough to ensure the adequate supply of components needed to allow smooth production.

"If the situation is not changed quickly, production delays and even production outages can no longer be ruled out," she said.

Robert Bosch, the world's largest car supplier by revenue, said in May the new procedures had hampered suppliers, but on Tuesday declined to give further details.

In written comments, Mercedes-Benz said it was "evaluating and monitoring the situation very closely".

"So far, we do not see any direct restrictions at Mercedes-Benz," it said.

Volkswagen VOWG.DE could not immediately be reached for comment.

Some suppliers cancelled their orders when export licences came into force because of uncertainty that they would receive them under new rules, said Christian Grimmelt, a partner at Berylls by AlixPartners, a consultancy specialised in car suppliers.

Diplomats, automakers and other executives from India, Japan and Europe are urgently seeking meetings with Beijing officials to push for faster approval of rare earth magnet exports, sources told Reuters earlier on Tuesday.

Analysts and the industry say Beijing is using the controls for diplomatic leverage.

They say the main rationale is U.S. President Donald Trump's tariffs, but because China controls 90% of global processing capacity for rare earth magnets, the impact is global.

Trade groups in the U.S. and India, representing automakers including General Motors GM.N, Toyota 7203.T, Volkswagen, Hyundai 005380.KS and others, have said factories may shut in production within weeks unless suppliers can source the rare earths they need.

(Reporting by Victoria WalderseeEditing by Ludwig Burger, Tomasz Janowski and Barbara Lewis)

((Victoria.Waldersee@thomsonreuters.com;))