Critical Minerals Shortages: A Looming Threat to EV Industry

Some of these materials such as terbium and dysprosium are critical for production of electric vehicle (EV) components. Both metals are used in the production of high-performance neodymium-iron-boron (NdFeB) magnets that are used in electric motors (e-motors). Both terbium and dysprosium aid in maintaining magnetization at high temperatures, which is crucial for efficiency of EV motors as they enable smaller, yet powerful, magnets for lightweight motors.

In addition to the rare earth metals, China’s new restrictions also extend to permanent magnets, which may further disrupt global e-motor production. China caters to more than 90% of the global demand for rare earth permanent magnets, making the situation even more precarious for manufacturers reliant on these components.  

Earlier in December 2024, China had imposed export bans on other high-tech materials such as gallium, germanium, antimony, and graphite, which are vital for semiconductors and battery anodes. Subsequently in January, China proposed restricting exports of preparation technologies for lithium iron phosphate (LFP) and lithium manganese iron phosphate (LMFP) batteries, which could severely limit LFP battery production outside Greater China. LFP batteries are a safer, cost-effective alternative to nickel-based batteries, crucial for reducing EV costs and accelerating adoption globally.

These restrictions can potentially cause significant supply chain bottlenecks, increasing material costs and delays in EV production worldwide.The effects are already beginning to shape automotive industry trends, as companies reevaluate sourcing strategies and shift investments toward more resilient supply chains.

Mainland China controls over 90% of global production of rare earth metals. These metals are essential for the development of advanced technologies, and as industries strive to innovate, the export restrictions imposed by China pose an immediate and serious threat to manufacturing capabilities worldwide.

While a few other countries, including Australia, India, and the United States, possess naturally occurring reserves of terbium and dysprosium, the refining and processing of these metals predominantly occur in mainland China. The expertise required for refining and processing these rare earth metals is complex and comes with a significant environmental footprint.

Over the years, mainland China has developed advanced processing technologies and has kept this expertise closely guarded through licensing and export controls. Until other countries can master this technology and build substantial processing capacity, the supply chain for rare earth metals will remain vulnerable to geopolitical events and trade conflicts. 

The US has now initiated measures to reduce its reliance on other countries such as mainland China for critical minerals sourcing.  

On April 24, President Trump issued an executive order aimed at rapidly developing domestic capabilities for exploration, characterization, collection, and processing of critical deep seabed minerals such as such as nickel, cobalt, copper, manganese, titanium and rare earth elements, both within and beyond national jurisdiction, to counter China’s growing influence over seabed mineral resources. The order envisions collaboration and partnership with allies for the development of deep-sea mineral resources located in foreign waters. 

Besides, President Trump has ordered a probe into the potential imposition of new tariffs on all critical mineral imports to the US. The investigation, to be conducted by Commerce Secretary Howard Lutnick, will also evaluate the US' vulnerabilities concerning the processing of critical minerals such as cobalt, nickel, rare earths and uranium, and to consider measures for enhancing domestic supply and recycling.

The executive order is a strong signal that the US government is committed to developing deep-sea mining for critical minerals. However, the US currently lacks a well-established infrastructure needed to process polymetallic nodules—which are rich in critical minerals like cobalt and rare earths—at scale, so significant capital investment and private sector participation will be required to establish these facilities in the country, which might take a significant amount of time. In such a scenario, any long-time ban on critical minerals exports from mainland China has the potential to cause shortages and disrupt global EV supply chains.

It remains to be seen how soon the US government will be able to attract enough investments and private sector partnerships in this area and how quickly deep-sea mining could begin. For now, only one company, The Metals Company Inc. (TMC), an explorer of lower-impact critical metals from seafloor polymetallic nodules, is known to have formally initiated a process with the National Oceanic and Atmospheric Administration (NOAA) under the U.S. Department of Commerce to apply for exploration licenses and commercial recovery permits under existing U.S. legislation, the Deep Seabed Hard Mineral Resources Act of 1980.