Rare Earths Too Scarce for Elon Musk's Plans
The Musk volatility factor strikes again. Tesla shares recently fell by 6%, and the latest news that the standard-bearer of the EV revolution might no longer need rare earths for his next electric car also caused gasps among suppliers.
Why did Elon Musk say that, even though he knows that he won’t be able to get by without rare earths for the time being? He wants to produce 20 million electric cars a year by 2030. To do this, he would need a huge amount of rare earths, which he would have to procure within a very short time. An analysis by ARD shows that a hybrid vehicle contains up to 20 kilograms of these commodities. If we assume that electric cars consume a similar amount, Elon Musk would need 400,000 tons of rare earths, given an annual production volume of only 300,000 tons. The Tesla boss therefore had to present a solution that “proves” that he can manage with fewer rare earths.
According to rumors, Musk is considering replacing rare earths such as neodymium oxide with ferrite. This ceramic material, which features high magnetic conductivity, is intended to enable the switch to permanent magnet synchronous motors. The material has not yet proven itself in practice. Elon Musk did not present a prototype at the Investor Day either. Work is apparently still ongoing on the rare-earth-free electric car. However, one thing we can already say for sure: dispensing with rare earths has always been accompanied by performance losses so far.
Neodymium-iron-boron magnets are the strongest permanent magnets in existence. They are responsible for the high speed of electric cars and are also the reason why they can pull away with significantly more power than conventional gasoline or diesel vehicles. Other rare earths such as praseodymium and dysprosium are often part of the magnet and protect it from demagnetization. Overall, rare earths ensure that an electric car is more powerful and has a greater range. In order to continue meeting the demand of customers who primarily look for quality when buying a car, rare earths remain important for Elon Musk.
We say: Rare earths are not Elon Musk’s actual problem. Most of these critical metals are relatively common in the ground; their scarcity is based on dependencies that Musk would need to reduce. One solution, albeit not a quick one, could be for him to invest a high three-digit million sum to open a mine in the USA, including an associated refinery. The mining of rare earths is just beginning to become more profitable again due to rising prices, so now would be a good time to secure access to these raw materials.
Another advantage: rare earths originating from Europe or the USA would be “green” if they were produced using the latest refining technologies. Two pilot plants already exist for this purpose, one in Wyoming and one in Norway. To date, over 90 percent of Europe’s rare earths come from China, where environmental regulations are below Western standards. However, supply chains are increasingly becoming a selling point, so a local mining or refinery project certainly offers advantages.
Incidentally, this applies not only to Mr. Musk, but also to European captains of industry.
From a broader perspective, rare earth prices are not in danger. According to the information portal Adamas Intelligence, demand for these raw materials will triple. Von der Leyen, the President of the European Commission, even speaks of a fivefold increase. Production, on the other hand, is expected to only double. Prices should therefore rise. For investors, this offers a good opportunity for additional purchases, including tax-free storage and tax-free profits after a one-year holding period.