Clean energy increases reliance on China’s rare earth supplies at a time when the West is accelerating efforts to reduce dependence – supply diversification is a process that takes time

Such fears are prompting Western governments led by the US, the EU, Australia and Japan to look at investing more in their respective domestic rare-earth production facilities. “The adoption of EVs alone will require an additional 200,000 tonnes of rare earths in the next ten years,” Luisa Moreno, president of Canadian rare-earth mining firm Defense Metals, told the mining industry publication Mining Technology in April 2022. “There is need for more mine production, and we need to build rare earths supply chains outside China, starting with refinery capacity. The West also needs the capacity to make rare earths metals, rare earths magnets, and other products and technologies.”

But could times be changing? A series of key events of late could see Western consumers’ reliance on China’s rare-earth supplies gradually diminish. Most recently, for instance, Tesla confirmed in early March that the forthcoming iteration of its permanent magnet EV motor would not contain a single rare-earth element. Colin Campbell, vice president of powertrain engineering at the EV company, noted that “as the world transitions to clean energy, demand for rare earths is really increasing dramatically, and not only is it going to be a little hard to meet that demand but mining that rare earth, it has environmental and health risks”.

The announcement immediately sent shares of Chinese rare-earth mining firms into a tailspin, although just how substantial a dent it will make in global rare-earth demand remains to be seen. Data from mineral-advisory firm Adamas Intelligence last year showed that passenger EV traction motors were responsible for 12 percent of global neodymium magnet (NdFeB) consumption; of this amount, Tesla was responsible for 15-20 percent, thus meaning its overall contribution to global NdFeB demand (excluding micromotors, sensors and speakers) was just 2-3 percent. “The global NdFeB market stands to lose a mere 2% to 3% of demand in the near-term, and maximum 3% to 4% over the long-term assuming Tesla maintains its EV market leadership.”

Nonetheless, Tesla’s move represents just part of a seemingly expanding trend by the West to diversify away from China’s rare-earth dominance, which the US and its allies consider a potential national security risk. “Western allies are the main driving force in decoupling from China, rather than China looking to detach from the West,” David Merriman, research director in rare earths at consultancy Wood Mackenzie (WoodMac), told the South China Morning Post (SCMP) in July 2022. “The West remains a key market for Chinese rare earth products, with many economic benefits to China maintaining this relationship, while the Western perspective seeks to reduce supply-dependency, particularly amid worsening geopolitical relations.”

January also saw Swedish mining company LKAB (Luossavaara-Kiirunavaara Aktiebolag) announce that it had discovered Europe’s largest rare-earth oxide deposit in the north of the country, thought to house more than one million tonnes. “This is good news, not only for LKAB, the region and the Swedish people, but also for Europe and the climate,” said Jan Moström, president and group CEO of LKAB. “This is the largest known deposit of rare-earth elements in our part of the world, and it could become a significant building block for producing the critical raw materials that are absolutely crucial to enable the green transition. We face a supply problem. Without mines, there can be no electric vehicles.”

With no mining of rare-earth elements currently being carried out in Europe, such finds could prove vital in boosting global production capacity outside of China. “Electrification, the EU’s self-sufficiency and independence from Russia and China will begin in the mine,” Ebba Busch, Sweden’s minister for energy, business and industry, added. “We need to strengthen industrial value chains in Europe and create real opportunities for the electrification of our societies. Politics must give the industry the conditions to switch to green and fossil-free production. Here, the Swedish mining industry ha[s] a lot to offer. The need for minerals to carry out the transition is great.”

But while such discoveries may lead to increased production capacity coming online further down the line, the West cannot hide from the fact that China’s overwhelming global dominance in rare-earth elements will remain in place for years to come.