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—Part of this EE Times series: A Vulnerable U.S. Electronics Supply Chain. Other articles in the series include: Experts: U.S. Military Chip Supply Is Dangerously Low, Reshoring Chip Industry Risks Failure With Just More Fabs, and U.S. Crawls Toward Rebuilding Frail PCB Industry.
USA Rare Earth aims to become the sole American supplier of the obscure metals vital to national security and production of electric vehicles (EVs), CEO Tom Schneberger told EE Times. The startup will go head-to-head with China, which controls over 90% of the rare earth supply chain and at times has used that strength as a geopolitical bludgeon.
USA Rare Earth plans to spend more than $500 million to ramp up mining, extraction and refining by 2027. Before that, the company will start supplying high-performance rare earth magnets for EVs and other electronics by 2024, he said.
“We’re starting by phasing up magnet production in the U.S., and we’re focused on primarily talking to [American companies] as customers, but also talking with some customers in Europe and in South Korea,” he added.
Remaining questions for Schneberger are what portion of total sales will be either magnets or rare-earth elements, and how much of each will be sold to the U.S. versus Europe and other regions.
“These are all things that we’ll learn as we go,” he said.
Rare-earth metals are a vulnerability in the U.S. electronics supply chain. Others include chips, IC substrates and printed circuit boards—all of which are primarily sourced from Asia. China halted rare-earth exports to Japan in 2010 during a diplomatic row between the two countries. Amid an intensifying tech war between the U.S. and China, concerns are rising that rare earths could be weaponized again.
“We’ve been this seeing lately,” Schneberger said. “You can see it across a number of critical minerals.”
In October last year, the U.S. strengthened limits on exports of chips and related production tools to China, citing national security concerns. China may retaliate if it is pushed too far, according to Robert Maire, president of Semiconductor Advisors.
“They could frankly screw us over pretty badly. There are a lot of rare-earth elements and a lot of other things that they supply to us that they have not yet cut off,” Maire said. “That could be used in a strategic manner against us. Frankly, I’m surprised we haven’t seen that happen.”
In December 2021, the People’s Republic of China (PRC) merged three state-run enterprises to establish the China Rare Earth Group Co., according to a report by the China Briefing. The newly established company will account for about 62% of the nation’s supplies and gain enhanced pricing power over key rare earths, such as dysprosium and terbium, the report said.
Industry veteran
Schneberger, a 30-year chemical-industry veteran, has spent half of his career designing and starting up production facilities. He’s found a ridge full of rare-earth elements near El Paso, Texas, where he’ll start mining operations. He’s also purchased the only equipment once used to make rare-earth permanent magnets in the West. The tools are from a plant that operated for a few years and was mothballed.
“We are putting that equipment back together to start it up in 2024 in a facility in Stillwater, Oklahoma.”
The company’s mining will take place on state-owned land in Texas.
“We have a lot of incentives in Texas, both because of the environmentally friendly footprint of our operation compared to what’s done in China, and because of the need and because of the jobs it creates,” Schneberger said. “We have been getting very public support in the state of Texas, as well as in the federal government.”
Even so, if the U.S. government starts to develop a raw material base for lithium or tungsten or rare earths—all of which China dominates—China would probably collapse prices to crush the competition, according to Lewis Black, CEO of Almonty Industries—the world’s largest tungsten supplier outside the PRC.
Will U.S. lawmakers help cut taxes?
To help offset such an action, Schneberger expects the revival of a proposed bill before Congress called the Rare Earth Magnet Manufacturing Production Tax Credit Act of 2021. That bill would create a $20-per-kilogram tax credit for magnets that are made in the U.S., or $30-per-kilogram for magnets that are both made in the U.S. and produced and recycled within the U.S.
The tax reduction bill is an incentive to produce magnets in the U.S. to offset the incentives and the potential moves that China has and probably will put in place, Schneberger said. USA Rare Earth also expects the recently passed U.S. Inflation Reduction Act and other government grants to provide funding support, he added.
Market growth
Schneberger expects global magnet revenue to more than triple to $18 billion by 2030 from about $6 billion today. The 200,000 tons of rare-earth oxides made today will nearly double during the same period, he said.
The U.S. defense industry has a huge appetite for the minerals. Each U.S. F-35 jet fighter needs about 427 kg (941 pounds) of rare earths, and each Virginia-class nuclear submarine, about 4.2 metric tons, according to the Congressional Research Service.
By 2027, USA Rare Earth will have a single-digit percentage of the magnet market, Schneberger predicted. By that time, the company’s output will be sufficient to make “well in excess of” a million EVs, he added. As the Texas ore facility reaches full output of 4,800 metric tons per year, Schneberger expects to increase production from a new site that he didn’t identify.
The company has invested about $70 million in magnet production and aims to raise more money soon. For the magnet line, the company owns almost all the equipment that it needs, Schneberger said. To finish the construction of that equipment, it’ll take a “small sum” of less than $100 million, he added.
“We continue to gain interest to invest more,” he said. “The biggest ones that would be interested in doing any funding as part of what’s typically a supply commitment are automotive. We’re also talking with brand names in consumer products as well, such as power tools.”
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