German Auto Parts Supplier Signs Europe’s First Rare Earths Deal

German auto parts supplier Schaeffler signed a rare earth deal to secure supply from Europe for its nascent electric vehicle (EV) motor business. The agreement marks a first time a European auto industry supplier or automaker to source rare earth within the continent.

The European Union has accelerated efforts to boost domestic production of rare earths and strong rare earth magnets used in EVs and wind turbines to reduce reliance on top supplier China.

Schaeffler has signed a five-year deal with Norway’s REEtec to supply rare earth oxides from 2024. The value of the transaction will be announced on Wednesday.

The agreement is considered as part of the effort from Schaeffler to transform into an e-motor supplier. To secure and diversify the rare earth side of the supply chain, the company needs local suppliers in Europe as well as the standard supply chain through China.

While automakers have signed significant deals with miners for battery materials like cobalt, lithium and nickel in recent years, deals regarding rare earths have been limited.

In December, General Motors signed a deal to source rare earth magnets in the United States, but Schaeffler’s is the first reported one in Europe.

The EU, Britain and the U.S. have increased efforts to build domestic rare earth and magnet industries to reduce China dependence. China supplies 98% of permanent magnets to Europe.

Schaeffler, Germany’s fifth biggest auto supplier by revenue, is a top bearings supplier for automakers such as Volkswagen, General Motors and Honda. It usually buys manufactured components from subcontractors referred to as Tier 2 suppliers.

The company’s efforts on sustainability drive it to source raw materials for the first time instead of ready made magnets.

Schaeffler is also cooperating with European partners to use rare earths produced by REEtec to make permanent magnets.

The company hinted that it may be willing to pay premium for domestically produced magnets that are made in a sustainable and transparent manner.

The automotive industry is knowns for being diligent on cutting costs as it is a mature industry with tight margins. However, there is growing acceptance that paying more for rare earths sourced from Europe may be worth it. The industry thinks the vehicles can be marketed as more sustainable, which may justify charging the customer a higher price.

REEtec uses a cleaner technology that needs less energy and under which nearly all the chemicals used in processing are recovered and reused.

The Norwegian company has been operating a demonstration plant since 2019 and the new deal will enable the company to build a commercial separation facility, sourcing raw materials from Vital Metals in Canada, which launched production last year.

The EU expects demand for permanent magnets in EVs and wind turbines to increase by as much as tenfold by 2050, when the EU and Britain have pledged to cut net greenhouse gas emissions to zero.

Schaeffler’s e-mobility business generated 3.2 billion euros of orders last year, nearly a third of total orders in its Automotive Technologies division and much higher than an original target for e-mobility of 1.5 billion to 2 billion euros.

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