Critical Metals

In light of China’s limitation on rare earth exports, companies such as Toyota are doing everything within their power to decrease their reliance on rare earth elements.

By Adam Currie — Exclusive to Rare Earth Investing News

Toyota Seeks to Decrease Reliance on Rare Earth Elements

The automobile sector has been waiting with bated breath since Toyota Motor Corp. (TSE:7203) announced that it has developed a method to manufacture hybrid and electric vehicles (EVs) without using increasingly expensive rare earth metals.

According to Japanese media reports, Toyota, the world’s top producer of fuel-saving hybrid vehicles, could bring the technology to market if the price of rare earth does not recede.

A company spokeswoman commented on the announcement, stating that the company will continue to research ways to reduce rare earth usage, but provided no time frame for commercialization.

Essential components

Rare earth alloys are essential components in most modern electronics, especially EVs. They are mainly used as battery motors and battery packs in EVs, with each new Prius accounting for approximately 25 pounds of rare earth elements (REEs).

Rare earth minerals such as neodymium and dysprosium are used in motor magnets in Nissan Motor Co.’s (TSE:7201) all-electric Leaf car, General Motors’ (NYSE:GM) plug-in Volt, and the Prius.

China sent shock waves through the market in 2010 when it imposed export quotas on all REEs. The announcement resulted in increased concern throughout the manufacturing sector, and led to capital being channelled into non-Chinese companies with REEs as a primary focus.

Not a lot of choice

Some market speculators believe that aside from Molycorp (NYSE:MCP) and Lynas Corp. (ASX:LYC), a steady supply of non-Chinese rare earths for manufacturers will not be coming online in the short term.

This point is significant as China produces more than 95 percent of the world’s rare earth metals, and Japan accounts for over a third of global demand.

Japan takes action

It was soon evident that Japan was growing tired of operating in a market where it was victim to price manipulation. This impatience came to a head with the country’s announcement that a team of researchers from Toda Kogyo Corp. (TSE:4100) and Tohoku University had succeeded in creating a magnetic material without the use of rare earth metals.

According to researchers, the material is made from readily available iron and nitrogen, and the goal is to commercialize the compound by 2023 with help from both Toyota and Honda Motor Corp. (TSE:7267) .

The compound will be “60 percent more powerful than existing magnets,” according to Professor Migaku Takahashi of Tohoku University.

Toyota is also developing an alternative motor that will not require rare earth minerals for future hybrid and electric vehicles.

John Hanson, a company spokesman, explained that Toyota engineers in Japan and the US will work in unison on an induction motor that will be lighter and more efficient than the magnet-type motor currently used in its Prius model.

“When you’re looking at a geopolitical issue like rare-earth supply, that can lead to developments that create very good solutions,” said Hanson, who is based at Toyota’s US unit in Torrance, California.

Proactive instead of reactive

G. Joel Chury, an investment columnist, summed up the mood of many in a recent column when he stated that the move by Toyota is interesting in that it is proactive instead of reactive, and represents a move forward in innovation.

“With Japan as a nation representing a third of global rare earth demand, having Toyota emerge as a leader in a fight to cut consumption helps dissolve the optics of Japan’s helplessness pertaining to the REE issue,” he wrote.

Despite this diversification, Toyota is clearly not turning its back on the rare earth market. In December last year it announced that it will help accelerate the production of rare earth metals for Canadian mining company Matamec Explorations Inc. (TSXV:MAT), as well as purchase all output from its Kipawa mine.

According to a company press release, a memorandum of understanding between the two companies offers Toyota Tsusho Corp. (TSE:8015) a supply of the metals still currently needed for its hybrid and electric vehicles. The agreement calls for the two companies to form a joint venture under which Toyota Tsusho would pay $17.5 million for 49 percent of the venture.

It cannot be denied that markets for REEs have fluctuated since China pulled back on exports in 2010. Whether or not other manufacturers will follow Toyota’s lead in choosing to be innovative in relation to decreasing their REE dependence and sourcing their own supplies has yet to be seen. However, one thing that is certain is that companies with capital on hand will not be willing to let China dictate the future of REE supplies.


Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.



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