Sourcing Critical Minerals for the OEM Automotive Industry in 2023; a case of déjà vu all over again

The Western OEM automotive industry has begun to downshift its expectations of the speed at which it will be able to changeover its traditional powertrain from internal combustion engines to electric motors. This is primarily due to two factors, one is material, the sourcing of components the operation of which depends on critical metals and minerals being mined and processed by an unplanned total supply chain that in many cases does not (yet?) exist, and the other is the industry’s reliance on customer demand coming from arbitrary government mandates requiring the EV transformation rather than on market forces.

It would seem that If the American Federal Government had good planning skills, its mandarins would, prior to the attempted implementation of a policy, look at the foreseeable consequences to the necessary critical materials’ supply chains of that policy. In the same vein you would assume that the management of American manufacturing corporations, looking at a radical product change, in the case of mass produced consumer products, would try to  coldly estimate the true costs of such a project. Alas, this is not the case for the vast majority of governmental oversight and private manufacturing organizations. They, thus, careen from one totally foreseeable crisis to another due, in both cases, to their ignorance of the time and capital allocation required for the design,  engineering and the construction of the mineral and processed metal products’ supply chains critically  necessary and sufficient for that radical product change.

Let’s look at the need both for mined minerals and for the total industrial supply chains downstream of mining to convert those minerals into the end-user forms necessary for the manufacturing of OEM automotive components used directly on cars and trucks. We will focus only on the manufacturing of electrically powered vehicles, EVs.

It cannot be overemphasized, and it is painfully obvious after a few moments of reflection, that the OEM industrial world does not directly use the mined ores of the metals that constitute the structure of, or the appearance of, or enable the properties of the electrical or electronic components of its finished products. In the last generation or so, the number of steps in the widely variant supply chains that transform these ores into finished end-user ready components has been of little or no interest to the financializers who now dominate the management of Western manufacturing corporations. In fact, the legacy of managers, who are trained and have operated as engineers and scientists within the corporations and who understand these supply chains has all but vanished.

The America OEM automotive industry’s move to electrification has placed its costs in intensive care [a/k/a margin collapse] The American Federal Government’s only therapy is to offer to subsidize the costs of EVs to reduce the losses, temporarily while the OEMs figure out how to become competitive with their dual nemeses at home and abroad, America’s Tesla and the growing Chinese EV behemoths led today by BYD, but we are assured that tomorrow the Chinese EV manufacturing industry will consolidate into just a few megacorporations making competition in the EV space in China all but impossible.

The Wall Street Journal recently wrote a review of the growth of BYD, which included the following paragraph:

“The investment bank, UBS, estimates BYD has a cost advantage of around 25% over traditional automakers in North America and Europe, due in large part to its in-house manufacturing of parts[my emphasis]. Analysts at UBS recently tore down a 2022 BYD model and found that around three-quarters of its parts were manufactured in-house.”

The American OEM automotive industry ignored the mining and processing industries after Henry Ford taught it to break the commodity based manufacturing “trusts” (a/k/a “monopolies)  of the 1910s, by vertically integrating his company upstream of his final products all the way to mining iron ore, shipping it, making steel, mining silicates, making glass, and even growing rubber for the making of tires. The surviving car makers, after the corporate bloodbaths of the teens and twenties of the twentieth century adopted this strategy of necessity in order to compete.

While I was a teenager, in the 1950s, car makers with names such as Hudson, Nash, Kaiser-Fraser, Studebaker and Packard vanished in bankruptcy leaving by the end of that decade just the Big Three, Ford, General Motors, and the Chrysler Corporation, and a small fourth called American Motors, the remainder of the last attempt by France’s Renault, to enter the American market.  

The vertical integration of the American car makers continued until the final quarter of the twentieth century, and their production and service parts labeled as  FoMoCo, Delco (GM), and Mopar (Chrysler) logos were familiar to the sourcing managers, and the manufacturing managers, not only of the OEM automotive assembly industry but also to those of the automotive  maintenance and repair industry.

The biggest instance in one industry of financialization for profitability rather than innovation and productivity was the selling off by the Big Three of their internal parts and service organizations. The best example of this folly was the sale of GM’s Delco to a private group that re-baptized it as Delphi and enriched itself even after filling GM’s then emptying coffers with more than a billion dollars. NB: One of the miscellaneous parts of this sell-off was the by-then moribund Magnequench subsidiary of General Motors, the very entity that had been created to first produce rare earth permanent magnets for the OEM automotive industry-you see, by the late twentieth century the Chinese had mastered the technology for producing magnet rare earths from the short-sighted Molycorp executives that had gone to them to secure low cost skilled and unskilled labor in the early 1980s. Of course magnet making followed, and by the late 90s it was all over for both Molycorp and Magnequench.

For the record, a financializer first bought the Magnequench unit from GM and could not revive it. He sold it to a Canadian group headed by a CEO who was an experienced chemical engineer. The Canadians immediately moved the operations to China to cut costs and may have kick-started China’s today dominance over Japan as the overwhelmingly largest manufacturer of rare earth permanent magnets for the OEM automotive industry (and for everything else, also).

The American rare earth processing industry shut down in 1998 when Molycorp shuttered its once pioneering and for some time, world’s largest solvent extraction plant dedicated to rare earth separation. As of today, October 24, 2023, twenty five years later, there is no solvent extraction plant dedicated to rare earths separation operating in North America. There is no operation in the Americas today making rare earth metals and alloys for magnets from rare earth chemicals. There is no operation in the Americas making rare earth permanent magnets for the OEM automotive, aerospace, or wind turbine industries.

I am now 83 and in pretty good health for my age-my mother lived to be 100. Why am I saying this to you? Because when I was asked at the Pentagon about 7 years ago how the USA could regain its footing in rare earth permanent magnets manufacturing I told them that they should scour the retiree communities and assisted care homes first to find the most experienced rare earth permanent magnet scientists and engineers and then provide oxygen, nursing care, and wheelchairs to those chosen to help.

Just since the closing of the original operations of Molycorp in 1998 and of Magnequech’s move to China shortly thereafter, the Chinese have trained and utilized an entire generation of rare earth miners, processors, and end-use product fabricators. Simultaneously they have created the world’s largest reservoir of specially educated rare earth scientists and manufacturing engineers(!). The total membership of these groups in China is believed to exceed 50,000 men and women. That means that while we, in the West, have been obsessed with financialization, the Chinese have already spent ONE MILLION MAN-YEARS on mining, refining, and producing and fabricating end user forms of rare earths for both the consumer and (their) military industries.

The sole driver today for the revival of a domestic American rare earth permanent magnet manufacturing industry is security of supply. But our institutional knowledge and inertia from excellence are extinct and have to be rebuilt.

If the United States actually were a free market economy then there would be no demand for domestic rare earth permanent magnets, since all potential domestically owned providers have openly said that they cannot match Chinese prices for such magnets. So, why are POSCO, Vakuumschmeltze, and JLMAG coming to North America to manufacture here such magnets? Its entirely due to the IRA, the Inflation Reduction Act, which grants subsidies, i.e., taxpayer giveaways, to those whose products have the majority of their value added domestically or in nations within which the USA has a “free trade” agreement, an FTA in Washington jargon.

The American OEM automotive industry has wisely embarked on a trajectory to become “involved” in a total domestic rare earth permanent magnet supply chain for its own needs. The U.S. Department of Defense has embarked on a similar mission. Neither group has much subject matter knowledge and may well waste quite a bit of time and effort on dead-ends, but both groups, the automakers and the military face an existential threat, the first being overwhelmed by Chinese made EVs and the second being overwhelmed by a Chinese military build up.  Both would lead to restrictions on the sale of rare earth permanent magnets by China to the USA to give China a competitive advantage.

America is now robbing Europe of its remaining expertise in the manufacturing of rare earth permanent magnets. This is due to the subsidies to be provided to European manufacturers who relocate to the USA. Time will tell if this is going to be enough. I believe that we are entering a zero-sum game. Some companies and government departments will win and some will lose.

There is simply not enough expertise to go around, and there certainly is not enough of the critical minerals and their processing either.

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6 responses

  1. Luc Gravel Avatar
    Luc Gravel

    Thank you Jack you are right and Mr Jim Kennedy told the same thing as you .

    Thank again.

  2. Jack Lifton Avatar
    Jack Lifton


    Thank you. My introduction to economic reality and the OEM automotive industry began in the early 1970s when the Arab world discovered global economics. President Nixon took the USA off of the gold standard in 1971, ending, in reality, the Bretton Woods Agreement formed at the end of World War II (By the “victors”) to stabilize and put off the global economic chaos they deemed sure to follow the economic distortions of that war. The newly independent (of the British and French empires) Arab states reacted immediately to the termination of the link between the US dollar and a fixed price for gold by taking control of the pricing of oil (in dollars) and terminating the until-then foreign (a/k/a imperial) ownership and control of their oil production.

    The death spiral of the domination of the global OEM automotive industry by the USA began then.

    I don’t want to rehash what followed, but I will give you one thing to think about: Today, the US’ remaining “big Two” [the small b is used purposefully] produce, combined, just 5 million cars per year within North America and the same in China. These two companies, GM and Ford, account today, when their output figures are combined, for just 10% of global car production. China, today, produces 50% more cars and trucks per year than are produced in the USA and its many manufac turers, when their outputs are combined, now account for 25% of global car production.

    China today produces more electric cars than GM and Ford, combined, produce cars,

    China, in the next year, will export more cars and trucks than GM and Ford, combined, manufacture.

    The single biggest threat to the OEM American automotive industry is not climate change; it is the Chinese progress towards the exportation of their cars and trucks into the US domestic market.

    Left on its own the US OEM automotive industry would react to that threat by lowering manufacturing costs and innovating hybrid power trains, but Washington’s economic dinosaurs have decreed another solution.

    Only time will tell whether or not the American OEM automotive free market will fall before subsidized industrial planning by Washington.

    What’s your bet?

  3. Maplelegion Avatar

    Great article , Jack . Those statistics you provide in your post scrip remarks are stark ..and alarming .
    The contemplation is then …do you extrapolate them also into into the Defense Industry , across all disciplines .???
    The Dept of Energy and the Dept of Defense …has to play catch -up , and fast ..and use all the tools ..people , technology and industries , and countries with Trade alliances , attracted by finance , to at least get the train back at the starting station . There are some green shoots —and as I understand it , there are some decisions that have to be made , or are destined to be made , on which countries and how these tax incentives will apply to raw materials imported to /manufactured in USA no later than the end of this year .
    Keep up the great work

  4. Jack Lifton Avatar
    Jack Lifton


    The U.S. Depts of Defense and Energy each have their own agendas with regard to sourcing rare earths. The DoE’s seems to me to be completely political, and its decisions reflect that. The DoD is actually trying to solve a DoD problem, which is creating a secure supply of rare earth permanent magnet motors for its warfighting equipment needs.
    I don’t know how Washington will resolve or even contemplate the DoD’s needs as it careens towards decisions on which countries’ rare earth outputs will qualify for the tax credit calculations on purchases of new EVs.
    I have heard that Japanese rare earth permanent magnets made in China have been shipped to Israel for “further processing” and then imported into the USA as “of Israeli origin.” This story may be apocryphal, but it is illustrative of political obfuscation, especially when contemplating the confirmed fact that US customs describes the origin of rare earths shipped to the US from Europe as of “European (usually French) origin, when, in fact, the products so described originated in China and were processed into end user forms in Europe. No rare earths whatsoever are mined, extracted, or separated today within the EU.
    Of course, the customs regulations are designed and enforced by the US Dept of Commerce, so we can see that the blame for the US positions on rare earths’ supply origins and the government’s erratic and ineffectual support for a domestic industry is easily put off on someone else in Washington.
    As they say in Washington:
    “The enemy’s in sight. Pass out the ammunition.”
    “Ammunition? I thought you brought the ammunition.”
    In street parlance the domestic rare earth permanent magnet situation in the USA is called a “clusterf***.”

  5. Maplelegion Avatar

    Hey Jack and Tracy : Suggestions :
    1) Jack , you should add your last comment , to your original article ..and re publish it under the heading “USA Rare Earths Cluster**** ” …because that indeed appears to be what it is !
    2) Tracy ..perhaps you and your great technical team , should look at adding an ‘EPIC ARCHIVES” segment to the Investorintel site ..where great contributions like this ( and of course others before) , are saved for reference , and are not lost as time spins by . Earlier contributions might not be retrievable –but starting somewhere ( with this article ) , would seem a very worthy addition .
    Thinking more about the problem …and the solution .
    a) Your article , with your additional comment –should be sent to all Senators advocating for rare earth legislation ..and also distributed to all Rare earth Investor companies who subscribe to Investorintel
    b) The action you suggested ( as a young 76 year old ) in this paragraph –well, the USA should just double down on those same efforts :
    I am now 83 and in pretty good health for my age-my mother lived to be 100. Why am I saying this to you? Because when I was asked at the Pentagon about 7 years ago how the USA could regain its footing in rare earth permanent magnets manufacturing I told them that they should scour the retiree communities and assisted care homes first to find the most experienced rare earth permanent magnet scientists and engineers and then provide oxygen, nursing care, and wheelchairs to those chosen to help.
    Thanks again for your current , past and future contributions .

  6. Tracy Avatar

    Thank you for your comment Maplegion. We just got a millenial to join our CMI Board – Brandon Colwell, he will be interviewing Mark Chalmers from EFR this afternoon. This is a Company that IS doin it right. And as for maintaining historical archives — been here doing this since 2008. Age 54, so I am one of the teenagers in the core. Please visit regularly, Jack and I write weekly.

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