How are EV Manufacturers Diversifying their Supply Chains?
The electric vehicle (EV) industry’s supply chain is facing a period of recalibration.
A heavy reliance on rare earth elements almost entirely sourced from China has long been identified as a potential risk.
Now, with newly imposed export restrictions on these critical materials, manufacturers are being forced to accelerate their strategies for diversification and seek out alternative technologies to secure their production lines.
Supply chain vulnerabilities
The 17 metallic elements classed as rare earths are fundamental to modern manufacturing, particularly for the high-powered magnets used in EV motors. China's market dominance is substantial, overseeing 61% of global rare earth production and 90% of processing.
This concentration has created a critical vulnerability in the global EV supply chain. The introduction of a new licensing system for the export of these materials has complicated procurement, creating logistical and financial hurdles for manufacturers outside of China.
According to IDTechEx, 87% of the global EV market used motors containing rare earths in 2024, with each motor containing between 1-3kg of rare earth magnets. This illustrates the scale of the potential disruption.
The real-world consequences of this supply chain vulnerability are becoming apparent. Dysprosium and terbium, two rare earths that fall under the new restrictions, are key components in the neodymium magnets used in most EV motors.
Difficulty in securing these materials is leading to major automotive players, including Ford and Suzuki Motor, announcing production delays or reductions. These events serve as a stark illustration of the disruption that can stem from an over-reliance on a single geographic source for critical components.
“We all got a wake-up call this year,” explains Barbara Humpton, CEO of USA Rare Earth.
“There has been globalisation which has pushed so much manufacturing overseas. And when China decided that they would not be providing rare earth for the magnets to the US and our trading partners, that sent a shockwave through the system.”
While other regions are exploring investments in mining and processing rare earths, establishing a viable alternative supply chain is a long-term project requiring significant capital and time. In response, the immediate focus for the industry has shifted towards engineering solutions that reduce or eliminate the need for rare earths.
Alternative motor technologies and materials
To safeguard against future disruption, EV original equipment manufacturers and motor producers are prioritising the reduction of rare earths. One strategy involves developing higher speed motors. These motors can be smaller while achieving the same power output, therefore reducing overall material consumption.
Engineering advancements have also allowed companies like Toyota, Nissan and Honda to decrease their dependency on the materials by tightly controlling impurities and refining grain structure during manufacturing. Furthermore, improving a motor's thermal management system could reduce the need for heavy rare earths, which are primarily used to prevent demagnetisation at high temperatures.
The externally excited synchronous motor (EESM) presents a commercially proven alternative that eliminates rare earths entirely. Already adopted by Renault and BMW, the EESM uses copper electromagnets on the rotor instead of permanent magnets. While the design is more complex and slightly less efficient, as the rotor windings require a power source, it is a more cost-effective and secure option when faced with an unstable rare earth supply.
Another substitute is ferrite magnets. They are widely available and cheaper, though they are less powerful therefore a larger volume is needed. This can create design challenges, as the motor must be made much larger to deliver the required performance, but it remains a practical solution for certain vehicle segments.
