Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
Shares of Chinese rare-earth miners were heavily sold off following Tesla Inc.’s surprise announcement that the electric-vehicle maker will drop the use of the material in its future models.
Citing health and environmental risks that accompany mining the material, Colin Campbell, a Tesla official, said its next drive unit will use a permanent magnet motor that doesn’t use rare earths. The comments, made at Tesla’s investor meeting, caused JL Mag Rare-Earth Co. and Jiangsu Huahong Technology Stock Co. to close down more than 7% in mainland China.
China dominates the world’s mining and refining of rare earths — a critical mineral used for everything from smartphones to electric vehicles and military hardware.
That overreliance has become an increasing pain point for global businesses as the pandemic squeezed supply chains, while geopolitical tensions between China and some western countries raise the risk of the material being used as a bargaining chip.
The sector saw short-lived rallies in 2019 and 2020 on speculation that Beijing may limit the export of the crucial metal amid trade tensions with the US. Developing sources of strategic minerals outside China has been flagged as a key priority for President Joe Biden.
Rare-earth miners bucked an overall steady session in the CSI 300 benchmark for onshore shares, with Rising Nonferrous Metals Share Co. closing down 6.7%. In Hong Kong, China Rare Earth Holdings Ltd. finished 2% lower.
While rare-earth miners are plunging on the news, there are doubts about the feasibility of substitutes for the mineral.
“It would be a big blow to the rare earth industry if there is a complete substitute to rare earth based on current technology,” said Yang Jiawen, an analyst at researcher Shanghai Metals Market. “Without Tesla disclosing any information on possible substitutes, I am cautious on the news.”
Campbell’s comments that Tesla has designed its own transistor package that can use 75% less silicon carbide than previously also sparked selloffs in some related stocks. Rohm Co. closed down 5.2% in Tokyo, after Wolfspeed Inc. slid 5.4% in post-market US trading Wednesday.
“Silicon carbide is an amazing semiconductor, but it’s also expensive and it’s really hard to scale,” he said. “So using less of it is a big win for us.”
Other Chinese suppliers to Tesla also dropped as a large part of the session mentioned efforts to drive down costs, increasing margin concerns for those who count the EV maker an important customer. Ningbo Xusheng Group Co. closed down 7.6% in China, while Ningbo Tuopu Group Co. finished 5.3% lower.
(By Charlotte Yang, with assistance from April Ma, Kurt Schussler and Winnie Zhu)
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