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Historic Investment: The United States Ventures into Rare Earth Magnets

The United States is making significant investments to boost its domestic production of rare earth magnets, aiming to reduce its dependence on China. However, it's worth noting how deeply entrenched China is in global rare earth supply chains, as the company selected by Washington for a new factory has a substantial presence in China. The Department of Defense recently announced a $94.1 million investment in E-VAC Magnetics to support the construction and operation of a large permanent rare earth magnet factory in the United States. E-VAC is a part of Vacuumschmelze, a century-old German company and the largest producer of rare earths in the Western world.

usine de production de voiture electrique

Rare earth magnets are crucial in the production of electric vehicles (EVs). Photo: Jonathan Ernst (Reuters)


An "historic investment" in rare earth magnet production. Permanent rare earth magnets power electric vehicle motors, wind turbines, and iPhones. They are named after the rare earth elements, primarily neodymium and praseodymium, they contain, and they have permanent magnetic fields. These magnets are essential for both military and industrial applications. However, the United States heavily relies on Chinese imports, which is perceived as a national security threat. "This initiative by the Department of Defense is historic," wrote Jack Lifton, the Executive Chairman of the Critical Minerals Institute, regarding the Pentagon's investment in E-VAC. "It represents the first significant announcement of a large-scale commercial rare earth permanent magnet factory in North America since Magnequench was sold and moved to China nearly 25 years ago."


Magnequench, a manufacturer of advanced magnets, previously had production facilities in the United States, but they were closed after the company was acquired by Chinese buyers.

Mitigating China-related risks is a complex issue. However, if Washington is counting on E-VAC to reduce Beijing's influence in a critical industry, E-VAC's parent company, Vacuumschmelze, has significant exposure to China. Approximately a quarter of Vacuumschmelze employees are based in China, and the company also has production facilities there. Furthermore, it is a minority shareholder in a China-based joint venture with Zhongke Sanhuan, China's largest producer of rare earth magnets.

Zhongke Sanhuan has close ties to the Chinese government; its majority shareholder is the Chinese Academy of Sciences, a public institution directly under the Chinese State Council. Its joint venture with Vacuumschmelze, known as Sanvac, was established in 2005 and is seen by Chinese industry analysts as an opportunity to learn from the German veteran and propel Zhongke Sanhuan into an internationally competitive position.


The production of rare earth magnets is a complex sector. In addition to E-VAC's exposure to China, there is also the challenge of economic viability. As highlighted by this week's industry newsletter, The Rare Earth Observer, Vacuumschmelze has a long history of operating losses.

Partly, this is attributable to the structural advantages enjoyed by China: Beijing has established tax rules favorable to its monopoly on rare earths, thereby placing magnet manufacturers outside of China at an economic disadvantage. Furthermore, the cost of magnet manufacturing equipment in China is estimated to be one-third to one-half that of Western machinery. Additionally, a recent industry report prepared for the U.S. government has warned that Vacuumschmelze and other European magnet producers will face increasingly fierce competition and shrinking margins as non-Chinese companies ramp up their production.


The complexity of the global supply chain and China's structural advantages present significant challenges. Therefore, it is essential to leverage expert strategies, such as those offered by Elio Strategy, to navigate this intricate sector and capitalize on the potential of rare earths in an ever-evolving global environment. Get our brochure: www.eliostrategy.com/brochure.

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