Super strong permanent magnets made from rare earths are an important part of many electric cars - and cause headaches in the European Union.

Because even if rare earths occur much more frequently than the name suggests, their extraction is costly and firmly in the hands of the Chinese.

In order to reduce the dependence on the People's Republic and to prevent possible bottlenecks, the EU is now working on proposals, according to insiders, how domestic production can be started.

The model here is the USA, where tax breaks were recently introduced for domestic manufacturers.

Nine out of ten permanent magnets currently come from China.

Electric cars with magnets made from rare earths require less electricity to drive and thus have a longer range, which makes them attractive for car manufacturers.

China receives subsidies

The manufacturers from the People's Republic received subsidies that made up around a fifth of the raw material costs, say representatives of European companies.

The local industry is now to be helped with cheaper financing options and lower raw material costs, said two people familiar with the plans.

The aim is to build up its own industry - the model is the battery alliance, which has initiated the establishment of dozen of giant factories for electric cars.

At the end of 2020, the EU founded the European Raw Materials Alliance (Erma), which is supposed to ensure the supply of minerals that are necessary for the energy transition.

According to insiders, Erma wants to present its plan in the coming month on how the industry can be strengthened in Europe.

A first proposal has already been made to high-ranking EU representatives. It would not work without the help of customers, explained the initiated people: They would have to be willing to pay a small premium. EU Internal Market Commissioner Thierry Breton has already promised to approach the automotive industry. The German industry association VDA declined to comment on whether its members would be willing to support such an initiative.

Meanwhile, companies like BMW or Volkswagen are trying to find ways to use less rare earths.

The fear of supply bottlenecks plays a role, but also strong price fluctuations and environmental concerns.

"Companies that have invested hundreds of millions in the development of a product family ... don't want to put everything on one card, the Chinese card," said Murray Edington, who is responsible for electric drives at the British consultancy Drive System Design.

"You want to develop alternatives."

Demand could increase tenfold by 2050

It is estimated that the demand for rare earths could increase tenfold by 2050 if the EU and the UK want to reduce their CO2 emissions to zero. Nevertheless, European companies are reluctant to expand their businesses without government support: "If we invest our own capital, it has to earn enough interest, and that requires joint efforts," said Constantine Karayannopoulos, CEO of Neo Performance Materials. The company owns the only commercial separation plant for processing rare earths in Europe. Karayannopoulos said he was ready to put 100 million euros into building a magnet factory in Estonia.

The Hanau-based magnet expert Vacuumschmelze (VAC) is still waiting to expand its systems for customers from the automotive industry: "The Chinese manufacturers of permanent magnets get their raw materials a quarter cheaper than I do," said VAC boss Bernd Schleede. “In order to achieve equal opportunities, either the EU should fill this gap or impose fines on imported magnets. Personally, I would prefer the first option. "