China's Rare Earths: An Inescapable Factor

In June this year, Suzuki Motor suddenly announced that due to restrictions on rare earth exports, there were delays in parts procurement, and the classic compact car, the Suzuki Swift, was forced to stop production.

Coincidentally, European automobile parts suppliers also shut down their production lines during the same period, and American companies were equally on high alert. The production of the Ford Explorer was urgently put on hold.

In electric vehicles, from headlights, windshield wipers, and cameras to seat belts and audio systems, wherever there are micro - motors and sensors, rare earths are almost indispensable. Especially for the main drive motor, its performance is closely related to rare earth permanent magnet materials.

Even in traditional fuel - powered vehicles, electric power steering (EPS) cannot do without rare earths.

According to Morgan Stanley's calculations, Chinese enterprises control 65% of the world's heavy rare earth mining, 88% of refining, and more than 90% of the supply of neodymium - iron - boron permanent magnets. This is why CNN called the supply crisis caused by rare earths an "upgraded version of the chip shortage" [1].

After the incident in 2010 when a Japanese patrol boat rammed a Chinese fishing boat near the Diaoyu Islands, China's rare earth export quota to Japan dropped sharply. The prices of major rare earth oxides increased by more than 5 times, and the prices of dysprosium, terbium, and europium increased by 15 - 20 times year - on - year [4]. European and American countries were extremely panicked for a while.

Since 2011, countries such as the United States and Japan have launched a series of alternative plans with the aim of getting rid of dependence. It was generally expected at that time that it would take about 10 years to prevent the rare earth crisis from happening again.

Fifteen years have passed, and the rare earth crisis has reappeared. According to the calculations of the U.S. Department of Energy, it will still take 10 years to rebuild a complete rare earth supply chain. It seems that history sometimes really repeats itself.

Rare Earths Are Not Really "Earth"

In 2016, the Model 3 was launched. With a battery capacity 20 kWh less than that of the Model S 100D, its cruising range was almost the same. Elon Musk attributed this to silicon carbide MOSFETs, but Konstantinos Laskaris, the chief motor designer at Tesla, believed that the credit belonged to his department [2]:

Our Model 3 has a permanent magnet motor, which can minimize costs while taking into account both cruising range and performance goals.

Konstantinos Laskaris

In 2021, the Model S Plaid equipped with three permanent magnet motors was launched. It only takes 2.1 seconds to accelerate from 0 to 100 km/h. Elon Musk could hardly hide his pride at the press conference and described it as "the limit of physical engineering."

However, both the cruising range of the Model 3 and the acceleration of the Model S are due to a rare earth element called neodymium.

The Model S Plaid press conference only lasted 20 minutes, as fast as its speed

There are two main types of mainstream drive motors: permanent magnet synchronous motors and induction asynchronous motors. Their structures are quite similar, and their working principles are also based on the principle of magnets: like poles repel and opposite poles attract.

However, compared with induction motors, permanent magnet motors not only have a higher power density but also a larger output torque. They not only have stronger power output but also can be made smaller in size.

The neodymium - iron - boron widely used in permanent magnet motors is commonly known as the "king of magnets." It is the magnet with the strongest magnetism on the earth, allowing the motor's maximum efficiency to approach 99% infinitely. An ordinary N35 grade (the number represents the magnetic energy product/magnetic strength) can attract metals more than 600 times its own weight.

This is the difference between talent and effort. Even the Transformers on Cybertron would have to undergo an electrification transformation if they could extract rare earths.

The discovery of neodymium can be traced back to 1841. Swedish chemist Gustav Mosander named the praseodymium - neodymium compound he discovered "Didymium" (from the Greek word for "twins").

In 1885, Austrian chemist Carl von Welsbach successfully completed the separation of praseodymium and neodymium. A century later, neodymium shone brightly in the electric vehicle industry.

Rare earths are actually a general term for 17 metal elements. Their discovery was quite a long - drawn - out process. It took the chemical community a full 153 years from the discovery of the first element, yttrium, to the last element, promethium.

"Rare earths" refer to scandium, yttrium, and 15 lanthanide elements

In 1966, RCA used rare earth red phosphors in cathode - ray tube televisions, kicking off the large - scale industrialization of rare earths. Since then, most electronic and automotive parts have widely used rare earth elements. However, due to the limited usage, the strategic position of rare earths is very high, but the market scale is quite limited.

With the penetration of new energy vehicles, the usage of rare earths has increased significantly. Generally, an electric vehicle uses 1.5 - 3 kg of rare earths. Coupled with the fact that the installation share of permanent magnet synchronous motors is as high as 96%, the strategic position of neodymium - iron - boron permanent magnets has been further enhanced.

In response to the poor heat resistance and easy demagnetization of neodymium - iron - boron permanent magnets at high temperatures, the solution is usually to add dysprosium or terbium to the formula.

For example, General Motors' SUVs based on the Ultium platform use about 160 grams of dysprosium per vehicle [3]. Although the amount seems small, it is not a small amount compared to electronic products.

CNN called rare earths China's "Powerful card" because controlling the key raw materials is equivalent to controlling the throat of automobile production. However, the United States, which is now in a quandary over rare earths, was once a major rare earth - producing country.

A Once - Dominant Industry

In April this year, Forbes magazine published an article with a very eye - catching title: The only rare earth mine in the United States will emerge victorious from tariffs.

The so - called "only rare earth mine" refers to the Mountain Pass mine in California (actually a transliteration of Mountain Pass). It is a typical example of a mine blessed by nature: gold was discovered in the 1930s, and during the exploration of uranium mines, a world - class rare earth deposit was also found.

Later, Molycorp obtained the mining rights and successfully separated the rare earth element europium, making a fortune in the color TV revolution. From 1965 to 1995, Mountain Pass supplied most of the world's rare earth metals, enjoying a 30 - year easy ride.

Mountain Pass rare earth mine

Unlike oil, the barrier for rare earths lies not in mining but in the processing stage. From mining to utilization, the rare earth chain generally consists of several steps: ore dressing to produce concentrate - separation of rare earth oxides - smelting and separation of single metals - processing into functional materials.

The chemical properties of rare earth elements are very similar, and the 15 lanthanide elements are like twins, making separation and purification very difficult. At the same time, during the separation of rare earths, associated impurity elements need to be removed as much as possible, as the purity directly affects the performance of downstream materials.

Therefore, similar to the chip industry, in the rare earth industry, the closer to the final product, the higher the added value created. Refining high - purity single rare earth metals is the most core link in the entire chain.

In other words, most countries lack not mines but production and processing capabilities.

In 1999, China began to implement a quota system for rare earth exports. The core of this system was not the export scale but the conscious guidance of the export structure. That is, to restrict the export of primary products, promote the export of high - value - added products in the downstream, and force enterprises to shift to high - value - added links represented by purification.

Currently, domestic rare earth elements can be purified to an ultra - high - purity level of 6N (99.9999%), while the United States is still struggling with the 2N - 3N level. The gap in processing technology directly leads to a problem: The rare earth concentrates in the United States need to be transported to China for processing and then sold back to the United States.

According to the Center for Strategic and International Studies (CSIS), China's rare earth refining output accounts for 92% of the global share, and its heavy rare earth refining capacity is as high as 99% [5].

Taking the neodymium - iron - boron permanent magnet in the permanent magnet motor as an example, neodymium is a light rare earth, and dysprosium is a heavy rare earth. As an additive, the purity of dysprosium should be at least 3N.

Another problem faced by the overseas rare earth industry is that although some technical links are not only mastered by China, only China has mastered large - scale production and built production lines with an annual output of tens of thousands of tons.

In addition to consciously guiding the industry to shift to high - value - added links, domestic policies have also been intentionally promoting the integration of the industry. In 2011, the Ministry of Industry and Information Technology proposed a "1 + 5" plan, that is, a plan of "one in the north and five in the south," and the record - filing was completed in 2014.

In 2021, under the guidance of the State - owned Assets Supervision and Administration Commission, six rare earth groups were integrated into four. In 2023, there was another integration, forming two companies: Northern Rare Earth and China Rare Earth. The industry integration was completed rapidly in less than a decade, and the scale advantage and bargaining power were demonstrated.

In this situation, even if overseas companies break through the technical barriers, it is difficult for them to form a scale advantage.

After China restricted rare earth supplies to Japan in 2010, Molycorp, which had shut down the Mountain Pass mine due to losses, received a $130 million investment from Japan's Sumitomo and restarted rare earth production. However, as China relaxed its rare earth export quotas, the rare earth prices plummeted, and the Mountain Pass mine went bankrupt again in 2015.

In 2017, a company called MP Materials acquired the idle Mountain Pass mine. Its goal is to build a vertically integrated advantage from rare earth mining to refining and then to magnet production to revitalize the U.S. rare earth industry.

Since the concentrates still need to be transported to China for separation, as of 2024, 80% of the Mountain Pass mine's revenue still comes from selling concentrates to China.

The Missing Triangular Relationship

At the investor day in March 2023, Elon Musk announced high - profile that he would reduce the use of silicon carbide by 75% and completely abandon rare earth permanent magnets to manufacture a permanent magnet motor without rare earths.

These two promises were not very prominent in Musk's history of making promises. However, from 2017 to 2022, Tesla reduced the use of rare earths in the Model 3 motor by 25% by improving the efficiency of the transmission system.

Musk's persistence is partly due to cost factors - in permanent magnet synchronous motors, the cost of rare earth permanent magnets accounts for about 30%, provided that the rare earth prices do not rise and exports are not restricted. But there are also considerations in the supply chain.

Tesla's Roadster and Model S initially used induction motors because the permanent magnet motors rely on overseas supply chains. Coincidentally, Toyota also had the same idea at first and generously invested $60 million in Tesla to develop induction motors on its behalf.

However, starting from the Model 3, Tesla still chose to use permanent magnet motors without hesitation for the sake of cost - effectiveness.

In addition to rare earth permanent magnets, ferrite permanent magnets can also be used in motors, and they are cheaper, but their performance is far inferior to that of rare earth permanent magnets. Even the ferrite with the best performance has a significantly lower magnetic energy product than neodymium - iron - boron [8].

The last material that Tesla couldn't let go of was graphite. The 4680 battery, which uses a silicon - carbon anode, almost consigned graphite to the dustbin of history. However, facts have proved that replacing graphite is a long - term task, and only China can produce graphite that meets Tesla's standards and scale.

Not long ago, Graphite One, a Canadian anode material manufacturer, kindly calculated for the U.S. government that with an investment of $505 million, it could build a graphite supply chain for the United States, but the production of graphite concentrates is scheduled to start in 2030.

As an upstream industry, in terms of scale and technological content, it often needs the scale and added value of the downstream industry to drive its development. As the only electric vehicle company in the United States, Tesla is a bit like a single tree that cannot support a forest.

The neodymium - iron - boron permanent magnet was first developed by Japan's Sumitomo (later acquired by Hitachi Metals) and General Motors respectively. The two sides once went to court over the patent and finally reached a cross - licensing agreement. However, unlike the popularity of the Toyota Prius, the U.S. automotive