Rare Earth Magnet Production Outside China Recently – Investor Briefing

Highlights

• China controls approximately 90% of global permanent magnet production.
• Western nations are building alternative supply chains in the US, Europe, and allied countries.
• Major investments from companies like MP Materials and Neo Performance are expanding non-Chinese magnet manufacturing capabilities.
• Government-backed projects are focused on defense, electric vehicle, and renewable energy sectors.
• Geopolitical tensions and Chinese export controls are speeding up efforts to reduce dependency on Chinese rare earth magnets.
• Significant investments are being made in mining, processing, and manufacturing technologies.

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Western nations and their partners have accelerated efforts to build a permanent magnet supply chain independent of China since January 2024. The capacity of Neodymium-Iron-Boron (NdFeB) and Samarium-Cobalt (SmCo) magnets is expanding in the United States, Europe, Japan, and other allied countries, backed by government funding and strategic partnerships. Key non-Chinese companies – from startups to established firms – are investing in new magnet manufacturing plants, with many expected to come online by 2025–2026. In parallel, the defense and electric vehicle (EV) sectors are forging procurement deals and “mine-to-magnet” alliances to secure critical magnet supplies. However, China still wields an overwhelming advantage in this market, controlling ~90% of global magnet output, with unmatched scale, lower costs, and a tight grip over raw materials and intellectual property. Recent Chinese export controls on rare earths, announced in April 2025, have added urgency to Western diversification efforts. Below, we detail major developments, companies, and implications for market participants and investors.

Non-Chinese Magnet Producers Expand Capacity (2024–2025)

United States & Canada: Several firms have made major investments in U.S.-based NdFeB magnet production.

South Carolina, part of Germany’s VAC Group (Vacuumschmelze (opens in a new tab)) is building a sintered NdFeB magnet plant in Sumter, SC, slated to open in late 2025.  Industry experts have informed Rare Earth Exchanges (REEx) that the cost of this plant is higher than it would be in Asia.

Its U.S. arm, E-VAC Magnetics, secured a $94.1 million (opens in a new tab) U.S. Department of Defense grant for equipment and engineering.

E-VAC has a long-term agreement to supply General Motors (opens in a new tab) (GM) with magnets from this plant.

The facility plans to use “locally sourced” U.S. rare earth materials for magnet production—a notable step toward an integrated domestic supply chain. (Heavy rare earth additives like dysprosium will still be sourced via allied projects in Australia, UK, etc., as discussed later.) This partnership with GM demonstrates that U.S. automakers are directly backing domestic magnet production.

U.S.-based MP Materials, best known for its Mountain Pass rare earth mine, began constructing an NdFeB magnet factory in Fort Worth, Texas, in 2022. The first phase will have a 1,000-tonne-per-year capacity, roughly equivalent to 1% of the current global output, and is expected to commence production in 2024. By late 2023, MP installed initial equipment and reported “a lot more progress in the coming months”. This plant will source neodymium-praseodymium (NdPr) from Mountain Pass, creating a mine-to-magnet pipeline in the U.S. GM is also a key customer for MP’s magnets under a 2021 deal (opens in a new tab). MP’s integrated approach (mining and manufacturing) is aimed at cutting reliance on Chinese processors.   MP Materials is near the top of the Rare Earth Exchanges Ranking Database.

USA Rare Earth (USARE) CEO was interviewed on the Rare Earth Exchanges Podcast (opens in a new tab). The firm achieved a milestone in January 2025 by producing its first batch of sintered NdFeB magnets at its Stillwater, Oklahoma, facility. This plant, dubbed the “Innovation Lab,” uses manufacturing equipment acquired from Hitachi’s former U.S. magnet plant.

It will initially target ~1,200 tonnes per year, ramping up to 4,800 tonnes per year by around 2026, as reported in multiple media outlets. The company’s CEO informed REEx that they would target the small and medium market first.

USARE is developing a vertically integrated model, owning the Round Top rare earth deposit in Texas, which is rich in heavy rare earth elements (REEs) such as dysprosium and terbium, slated for production in 2025–26.

In the interim, USARE has secured rare earth feedstock agreements with allies, such as Australian Strategic Materials and American Resources Corp, to supply its magnet line. USARE plans to invest over $100 million and expects to begin commercial magnet sales by 2026.

Investor note: USARE (which went public via a SPAC (opens in a new tab)) is positioning itself to be a significant U.S. magnet producer, and its success in scaling from prototypes to volume production will be a key indicator of Western supply chain viability.

Noveon Magnetics (opens in a new tab), a rare-earth magnet maker and recycler based in San Marcos, TX, is one of the only U.S. producers of sintered NdFeB magnets at present, according to media accounts (opens in a new tab).

Launched in 2014, Noveon ramped up operations in 2020 and now employs ~100 workers. It uses both newly sourced and recycled rare earth material to make high-performance magnets for motors, electronics, and defense. In May 2023, Noveon raised $75 million (opens in a new tab) (Series B) to expand production, with Texas’ governor lauding the company’s role in “bringing rare earth magnet production stateside”.. Noveon’s facility has capacity for about 2,000 tonnes/year of NdFeB (opens in a new tab) magnets and it has publicly stated a goal of ~$250 million annual revenue at full output.

In Feb 2025, Noveon inked a five-year contract with Nidec Motor Corp (opens in a new tab) (a major Japanese motor manufacturer) to deliver 1,000 tons of magnets (200 t/yr) for Nidec’s industrial automation and defense products.

This deal validates Noveon’s quality for demanding applications and is expected to drive further growth. Implication: Deals like Noveon–Nidec demonstrate that Western magnet makers are winning business due to geopolitical tailwinds, even if Chinese magnets remain cheaper. For investors, Noveon’s expansion, backed by venture and DoD funding, exemplifies the growth potential in domestic magnet technology, as well as the importance of strategic customers for revenue stability.

Other U.S. Projects: The U.S. Department of Defense has funded smaller magnet initiatives to broaden the industrial base. For example, TDA Magnetics (opens in a new tab) (a U.S. magnet producer specializing in rare-earth alloys) received ~$2.3 million (opens in a new tab) to qualify its magnets for defense supply chains. Additionally, legacy U.S. magnet companies are seeing renewed investment. Electron Energy Corporation, (opens in a new tab) a long-time Pennsylvania-based supplier of SmCo magnets for defense and aerospace, was acquired by Magnetic Holdings, LLC (opens in a new tab) in 2024 as part of an effort to consolidate and scale up U.S. magnet capabilities, particularly for SmCo and other specialty magnets. These moves suggest that even niche players are being integrated to serve the broader “made-in-USA” magnet push.

What About Europe?

Europe, including the United Kingdom, has moved aggressively to establish regional magnet production, combining state support and private capital.

Neo Performance Materials (Toronto-listed company) began construction of a major NdFeB magnet block plant in Narva, Estonia (opens in a new tab) in mid-2023. The facility is scheduled to start commercial production in 2025 with 2,000 t/year capacity (opens in a new tab), enough for ~1.5 million EVs per year.

A planned second phase would lift capacity to 5,000 t/year. Neo also acquired UK-based magnet component maker SG Technologies (opens in a new tab) in 2023 to enhance its downstream capabilities.

Neo’s strategy is to offer “local-for-local” magnet supply to European and American OEMs who are actively seeking non-Chinese sources. By building in Estonia, an EU and NATO country, Neo aims to serve the European EV and wind power markets with magnets that meet Western procurement standards. This facility is one of the first large-scale magnet plants in Europe in decades. Investor note: Neo’s expansion, partly backed by EU incentives, positions it as a key non-Chinese magnet supplier. If it meets its 2025 startup goal, Neo will become a rare publicly-traded play on European magnet manufacturing.

GKN Powder Metallurgy (opens in a new tab) (part of UK-listed Dowlais Group (opens in a new tab)) announced (opens in a new tab) plans to establish 4,000 t/year of magnet capacity across Europe and North America. It launched a pilot line in Radevormwald, Germany in early 2025 and will scale up based on customer demand. In October 2023, GKN signed an MoU with Germany’s Schaeffler (opens in a new tab) to collaborate on permanent magnets for automotive and industrial uses. GKN’s magnet initiative is notable because it leverages the expertise of an existing Tier-1 automotive supplier to enter magnet production at scale.

The company’s demerger from Melrose plc in 2023 allowed it to focus on new growth areas, such as magnets. Implication: GKN’s entry could bring much-needed competition and capacity to the Western magnet supply market, especially if it partners with automakers. Dowlais (GKN’s parent) being publicly traded means investors can directly gain exposure to this magnet venture’s success.

Less Common Metals ( (opens in a new tab)LCM) – (UK-based producer of rare earth metals and magnet alloys) announced (opens in a new tab) in May 2025 a €110 million investment to build a plant in Lacq, southern France.

This facility will produce rare earth metals and magnet alloys, the intermediate materials for NdFeB and SmCo magnets, thereby expanding Europe’s upstream supply chain. LCM has over 30 years of experience in alloy production, and its existing UK plant (with a capacity of ~2,500 t/year of alloys) is one of the few non-Chinese sources of specialized magnet metals. The new French plant, supported by the French government, aims to enhance European supply chain resilience for the electric vehicle (EV) and energy industries.

It complements other French projects, such as Caremag’s rare earth recycling and refining initiative at Lacq, which France and Japan fund.  The company raised €216 million (opens in a new tab).

Notably, LCM’s expansion comes amid Chinese export controls on high-performance magnets and heavy rare earth materials in April 2025, which created a “supply shock” and underscored the need for local capacity. Investor angle: While LCM is privately held, its expansion reflects broader opportunities in Europe’s magnet supply chain – from recycling to alloy making – that could benefit related companies (e.g., chemical firms, recyclers, and equipment providers).

Other European Moves: In April 2024, Solvay inaugurated a production line for rare earth components in La Rochelle, France, with a focus on magnet-related materials. And this year the firm inaugurated their production line (opens in a new tab).

EU institutions are also promoting magnets as a strategic industry under the Critical Raw Materials Act, aiming to attract projects with targets such as achieving 20-30% of EU magnet demand through domestic production in the coming years. Germany, for instance, is reportedly considering incentives for local magnet manufacturing to support its auto industry.

Additionally, UK-based HyProMag (opens in a new tab), owned by Canada’s Mkango Resources, has been scaling up magnet recycling plants in Britain and Germany, utilizing a patented process to reclaim NdFeB powder from scrap and manufacture new magnets. This recycling route, expected to start small-scale production by 2024–2025, could supply magnets to companies such as BMW and Jaguar Land Rover, partners in the project, and reduce dependence on newly mined rare earths.

What about in Asia?

Allied Asia-Pacific: Japan, South Korea, and Australia – all U.S./EU allies – are key to the non-Chinese magnet ecosystem through both existing industry and new projects:

Japan produces the bulk of non-Chinese rare earth magnets (opens in a new tab) today (an estimated 4,500 tonnes of NdFeB magnets in 2024, led by Hitachi/Proterial and Shin-Etsu (opens in a new tab)).

Japanese firms pioneered NdFeB technology (Hitachi Metals held the original patents) and maintain high-end production for the automotive and electronics industries. While much of Japan’s magnet output still relies on Chinese raw oxides, the country has a robust knowledge base and some capacity for heavy rare earth processing. In this period, Japanese companies have focused on incremental improvements and alternative materials: e.g. Proterial (formerly Hitachi Metals) is developing advanced ferrite magnets and motor designs to reduce rare earth usage, and Toyota has implemented NdFeB magnets that use less neodymium (substituting with lanthanum/cerium) in select models according to Magnetics Business and Technology (opens in a new tab).

Japan’s government also formed stockpiles of critical rare earths and fostered partnerships, such as funding the French Caremag recycling plant, (opens in a new tab) to ensure a stable supply.

Takeaway: Japan’s magnet industry serves as a template for high-quality production outside China; however, new large-scale capacity in Japan itself has been limited during 2024–25. Instead, Japanese corporations (e.g., Sumitomo, Toyota) are investing abroad or in R&D for rare-earth-efficient technologies.

South Korea is entering the magnet manufacturing through joint ventures. POSCO International, in partnership with China’s Star Group Industrial, is planning a 3,000-ton-per-year magnet factory in the U.S., with potential sites in Texas, Tennessee, or Arizona, according to FastMarkets (opens in a new tab).

POSCO already supplies magnets to Vietnamese EV maker VinFast (opens in a new tab) and is now “reviewing” U.S. expansion to serve North American EV production. This move aligns with Korea’s strategy to expand its EV supply chain footprint in allied countries, leveraging free trade agreements to increase IRA tax credit eligibility. \

Additionally, Korean firms like LG and Hanwa are investing in rare earth processing and magnet recycling technologies domestically, often in collaboration with U.S. defense programs. Australia’s role is chiefly as a supplier of raw materials – e.g., Lynas Rare Earths (Australia) remains the largest rare earth miner/refiner outside China, and it’s constructing a heavy rare earth separation plant inTexas (with $258M U.S. funding) to provide dysprosium, terbium and other inputs needed for magnets.

Australia’s Australian Strategic Materials (opens in a new tab) (ASM) has built a metallization plant in Korea to produce NdFeB alloy and signed on as a feedstock provider for USA Rare Earth, as reported (opens in a new tab) in Mining.com.

While Australia and Korea do not yet have large magnet factories, their collaboration and investments indicate that they will play a critical upstream role (and possibly venture into magnet production later this decade).

Implications – Supply Chain is Diversifying—Gradually, the flurry of non-Chinese magnet projects marks a turning point: by 2025–2026, the West could have several thousand tonnes per year of magnet capacity operational, with the U.S. and Europe each adding 1–5% of the global supply. Companies like MP Materials, Neo, and VAC are essentially rebuilding a magnet industry that had atrophied outside China.

This opens opportunities for investors in raw material producers, emerging magnet specialists, and allied tech firms. However, the timeline to scale is lengthy. Most new plants won’t reach full capacity until the late 2020s, and even then, China’s output will dwarf them. Execution risk is also significant – ramping complex metallurgy to volume production can face delays and cost overruns. Investors should watch for offtake agreements (like GM’s deals) and government subsidies that underpin these projects; such support will be critical for their commercial viability, given China’s cost advantage.

Defense Sector – Securing Magnets for Security

Permanent magnets are essential for advanced weapons and defense systems – from precision-guided missiles and fighter jet electronics to submarine propulsion. Since 2024, Western defense agencies have escalated efforts to eliminate Chinese magnets from their supply chains:

Policy & Procurement Changes: The U.S. National Defense Authorization Act (NDAA) (opens in a new tab) and related regulations now prohibit the Department of Defense (DoD) from sourcing NdFeB magnets from China, effective 2026, with limited exceptions.

NDAA FY2024 expanded the definition of “domestic source” for rare earths to include allied countries like the UK and Australia, enabling U.S. defense contractors to use allied-origin magnets and materials.

Practically, this means a jet or missile can contain Australian or Estonian rare earth materials, but not Chinese, if it is to meet “Buy American” requirements. To meet these mandates, defense contractors, such as Lockheed Martin and Raytheon, are auditing their supply chains, qualifying new suppliers, and even redesigning components to use non-Chinese magnets. For example, after a temporary halt in F-35 deliveries in 2022 due to a Chinese magnet discovered in a subcomponent, contractors have become hyper-vigilant. They are increasingly sourcing SmCo magnets domestically for high-temperature needs and are looking to new NdFeB suppliers, such as Noveon or USA Rare Earth, for future orders.

Direct DoD Investments: Recognizing the market alone might not ensure supply, the U.S. Department of Defense has directly funded magnet production projects under the Defense Production Act and Industrial Base grants. In addition to the $94 million for VAC’s U.S. plant, DoD’s five-year rare earth strategy (via the Manufacturing Capability Expansion and Investment Program) has injected over $ 439 million since 2020 into the “mine-to-magnet” ecosystem, reports (opens in a new tab) CSIS.

As cited by the U.S. Department of Defense (opens in a new tab), this includes support for mining (MP Materials), separation (Lynas USA), and magnet manufacturing (Noveon, TDA, E-VAC). The goal is to achieve a fully domestic supply chain for defense needs by 2027, although officials acknowledge that this goal is ambitious. As of early 2025, CSIS (opens in a new tab)reported (opens in a new tab) that the U.S. still had zero operational heavy rare earth separation capacity – a critical gap for producing Dy/Tb needed in high-performance magnets.

 The Pentagon is also collaborating with allies, such as co-funding heavy rare earth refiners in Europe and signing technology-sharing agreements with Japan and Australia related to rare earth processing.

Market impact: This government backing effectively de-risks parts of the supply chain for investors – many new magnet plants have guaranteed offtake (defense or EV) and grant funding. Defense demand alone, while modest in volume (the entire U.S. defense sector needs perhaps a few hundred tonnes of magnets per year), is willing to pay premium prices for non-Chinese sources, ensuring early revenue for Western producers.

Defense Contractor Partnerships: Major defense contractors are also forming partnerships and joint ventures to secure magnets. For instance, BAE Systems and Northrop Grumman have each explored tie-ups with rare earth mining ventures (to secure upstream supply that can be funneled into magnet production).

Some are investing in magnet recycling programs to reclaim materials from decommissioned equipment. In the UK, Rolls-Royce and other aerospace firms are supporting local magnet R&D to eventually source aircraft and missile programs domestically. The theme is vertical integration – defense players want to ensure that, from raw oxide to finished magnet, at least one non-Chinese source is available for each step. We also see NATO allies coordinating stockpiles of critical magnet materials. For example, the U.S. and Japan have an ongoing exchange where the U.S. can access Japanese-made magnets (e.g., from Hitachi) for interim needs, while the U.S. builds capacity – essentially a stopgap measure leveraging Japan’s non-Chinese production.

Outlook: For defense suppliers and investors in that space, these developments mean near-guaranteed demand for any qualified Western magnet output. Companies that are successful in producing mil-spec magnets (with the required reliability and performance) can secure long-term contracts, relatively insulated from price competition with China.

However, meeting military specifications is challenging – it often requires the use of heavy rare earths for top-grade magnets and rigorous testing. Thus, the viability of Western magnet projects will heavily depend on resolving significant issues with heavy rare earth supply.

From an investor’s perspective, defense-driven magnet ventures may not yield huge volumes, but they offer high-margin, strategic business opportunities. This could benefit specialized firms like Electron Energy (SmCo magnets) and new entrants in NdFeB, which align with defense needs. Moreover, as China’s export restrictions tighten (see below), having a secure magnet source becomes a competitive advantage for defense OEMs, potentially impacting the stock prices of those prime contractors if they cannot meet the sourcing requirements.

China’s Enduring Advantage: Price, Scale & Supply Chain Control

Despite all the Western activity, China is expected to retain a vast lead in the permanent magnet industry in 2024–2025. According to various estimates, China accounts for ~90% of global rare earth magnet production and a significantly higher share of key intermediate materials. A few points underscore China’s dominance.

Scale and Output: China’s magnet output is measured in hundreds of thousands of tonnes annually. In 2024, China produced an estimated 300,000 tonnes of NdFeB magnets (opens in a new tab).

This is a more than doubling from ~138,000 tonnes in 2018. The U.S. Department of Energy notes that the rest of the world, combined, produces only about 10% of magnets, mainly in Japan, as reported in multiple media outlets, including Fastmarkets.co (opens in a new tab)m.

No single Western project comes close to Chinese scale: even MP Materials’ future 1,000 t/yr and Neo’s 2,000 t/yr are drops in the bucket. Chinese companies, such as JL MAG, Advanced Technology & Materials (AT&M), ZhongKeSanHuan, and others, each have capacities that rival the entire non-Chinese world’s output. This scale gives China enormous economies of scale and the ability to meet surges in demand that Western producers currently cannot match.

Cost Competitiveness: Chinese magnet manufacturers generally operate at lower cost due to several factors: large-scale integrated operations, cheaper labor and energy in some regions, and extensive experience (learning curve efficiencies).

Moreover, China has historically encouraged downstream exports by adjusting tax and export policies – for instance, China has at times imposed export taxes or quotas on unprocessed rare earth oxides while offering VAT rebates on exported magnets, effectively incentivizing the export of magnets (not raw materials) as China’s primary export product. This industrial policy means that a Western magnet maker trying to import Chinese NdPr metal will pay a higher price, due to export duties or a tight supply. In contrast, a Chinese magnet finished product might be priced more competitively.

Analyst estimates: By 2025, Chinese-made NdFeB magnets are expected to be 20-30% cheaper than a nascent U.S.-made magnet, even after accounting for tariffs, unless subsidies are applied. VAC’s spokesperson explicitly stated that tax credits for magnet manufacturing are “critical” to keep U.S.-made magnets competitive globally, highlighting that without government support, price parity is difficult. For investors, this means Western magnet ventures likely need continued policy support to thrive; their profit margins will depend on incentives or targeting premium segments (such as defense, aerospace, and specialty electric vehicle motors) rather than commodity markets.

Complete Supply Chain & IP: China’s advantage extends from the mine to the finished product.

Raw Material Control: China refines over 80% of the world’s rare earth oxides and nearly 100% of heavy rare earths, as cited many times by REEx. Even if rare earths are mined elsewhere (Australia, USA), many end up being sent to China for processing. This integrated supply insulates Chinese magnet makers from raw material shortages and gives them negotiating power (they can source Nd, Pr, Dy at internal prices).

 Technology & Workforce: After decades of production, China has a deep pool of engineering talent and proprietary knowledge in magnet making, including techniques such as grain boundary diffusion, which maximizes performance with minimal heavy rare earth (RE) usage. While fundamental NdFeB patents by Hitachi expired in 2014, Chinese firms have developed their own improvements and trade secrets. Some western companies are essentially rebuilding expertise that China’s industry has honed for years.

Additionally, manufacturing equipment for magnets is often made in or tailored for China. Indeed, in December 2023, China banned the export of rare earth magnet production technology and machinery, according to Fastmarkets.com (opens in a new tab).

This move “formalized” existing curbs and ensures that cutting-edge equipment (e.g., specialized sintering ovens, milling machines for magnet alloys) cannot be easily acquired by new overseas competitors. It forces Western projects to engineer more on their own or source from limited non-Chinese suppliers, potentially raising costs and slowing progress.

Domestic Demand and Subsidies: China also has a vast domestic demand for EVs, wind turbines, and electronics, which its magnet industry supplies; however, any excess capacity can be exported aggressively. Chinese regional governments often subsidize local magnet champions with tax breaks, cheap loans, or power discounts to maintain employment, allowing them to weather downturns or undercut prices abroad. This form of support is complex for free-market players to match. Western governments have begun to respond in kind, offering grants and tax credits, but China’s centralized control and financial firepower in this sector remain formidable.

In summary, China’s dominance means it effectively sets the market terms, including price levels, innovation pace, and who gets raw materials. For Western market participants, this reality implies that non-Chinese magnets will occupy niches (such as high-assurance supply for defense and electric vehicles, specialty grades, etc.) or rely on protective measures. Retail investors eyeing magnet production firms should be mindful that these companies face a very powerful incumbent. The flip side is that geopolitical and customer pressure are strongly in their favor right now – a rare situation where end-users want non-Chinese options and governments are willing to make it viable. The next few years will test whether Western producers can scale fast enough and innovate to narrow the cost gap.

China’s Rare Earth Export Restrictions (2024–2025) – A New Challenge

A significant development in this period has been Chinese export controls on rare earth materials, which directly impact Western magnet makers. On April 4, 2025, China’s Ministry of Commerce announced new export licensing requirements on a range of medium and heavy rare earth elements and super high-performance magnets as reported by REEx. The targeted list included samarium, dysprosium, terbium, gadolinium, lutetium, scandium, and yttrium – plus magnets using these elements, which are critical for defense, EV, and energy technologies. While not an outright ban, this move requires any Chinese entity to obtain government permission to export specific rare earth oxides, metals, or magnet products.

Impact and Observations

Immediate Supply Shock: The new controls created a pause in exports as the licensing system was set up. By mid-May 2025 (six weeks in), industry sources reported that only a handful of export licenses for high-performance magnets had been approved, and exports of the controlled heavy rare earth products had “not yet restarted”. This caused heartburn for Westernmagnet makers who do rely on Chinese feedstock. For example, European magnet alloy producers suddenly couldn’t obtain dysprosium metal shipments. Some U.S. startups saw delays in obtaining samples of specialized magnets or materials from China. The uncertainty forced many to tap strategic stockpiles or scramble for alternate suppliers (if any). It’s believed that China prioritized certain export license approvals to friendly destinations or important customers (e.g., magnets for German auto suppliers were reportedly fast-tracked), while others languished.

Motivation – Geopolitics: These Chinese restrictions are widely seen as retaliation for U.S. tech export bans and an effort to exert leverage. Notably, the announcement coincided with heightened U.S.-China trade tensions and came after U.S. moves to restrict China’s access to advanced semiconductors. By targeting heavy rare earths, where China holds a near-total monopoly (China accounted for 99% of global heavy rare earth element processing before this, according to CSIS analysis), Beijing sent a signal that it can disrupt supply chains critical to defense and green energy. The inclusion of samarium in the list is significant, suggesting REEx. Why? Samarium is used in SmCo magnets, which are vital for defense aerospace (and one of the few areas where the U.S. has small domestic production).

Strategic effect: Western governments now face a scenario where, even if they build magnet factories, China might choke off the raw materials (oxides/metals) needed for those factories. This accelerates the need for allied sources of heavy REEs (e.g., Lynas’s Texas plant, or projects like Rainbow Rare Earths’ Phalaborwa in South Africa).

Western Response: The export controls have validated and intensified Western investment in the magnet supply chain. Projects that previously focused on light rare earth now see heavy rare earth capability as urgent. The EU and U.S. are considering joint stockpiling of dysprosium and terbium. The price of dysprosium oxide spiked on spot markets in April and May 2025 amid uncertainty.

For magnet end-users, there’s a risk that Chinese magnets containing these controlled elements could also face delays or discretionary restrictions. (Notably, the rules require a license for exporting magnets meeting specific performance criteria – presumably, high-grade magnets likely for EVs or military. This could be used to block cutting-edge magnets from being sold to adversary nations. Western magnet producers with alternative supply sources (such as USARE’s Round Top or Neo’s planned Estonia sourcing) could benefit, as they become more attractive suppliers immune to Chinese licensing whims. Indeed, as Fastmarkets noted, the latest supply shock put further pressure on magnet manufacturing projects outside China to deliver, even as those projects already faced significant RE shortage issues.

Chinese Strategy – Value Addition: Some experts interpret the restrictions as China seeking to export finished products (such as motors and turbines) rather than raw magnets.  REEx has chronicled a move to the “two rare earth base” in China, with an emphasis on integrating the entire supply chain for higher-value-added research, development, and production.

By making it cumbersome to export raw magnets or oxides, China indirectly encourages foreign customers to either (a) relocate their factories to China or (b) purchase assembled components from China that include the magnets, rather than producing their own.

For instance, a Western electric vehicle (EV) maker might find it easier to import a Chinese motor containing a magnet than to import separate magnets – a form of technological leverage. This is a long-term competitive strategy that Western nations are keenly aware of.

From an investor perspective, China’s export curbs are a double-edged sword. On one hand, they increase the urgency (and likely government support) for non-Chinese magnet ventures – a positive for companies like Lynas, MP Materials, Neo, etc., as it improves the future market for their products and could drive prices up. We are already seeing price firming in heavy rare earths, which could improve margins for potential producers outside China.

On the other hand, in the short term, any company outside China that still depends on Chinese inputs is at risk of supply disruption.

For example, a magnet factory in Europe awaiting shipments of Chinese alloy could face downtime. Thus, investors should evaluate how independent each new magnet player truly is from Chinese material. Those with integrated mines or recycling sources stand to be more resilient. In summary, China’s move underscores the thesis that control of the supply chain is as critical as the end product, and it likely cements rare earth magnets as a strategic sector where governments will intervene (with export controls, tariffs, subsidies) for the foreseeable future.

Key Customers & Sourcing Shifts

Defense Contractors: As discussed in the defense section, major defense original equipment manufacturers (OEMs) are shifting their sourcing in line with policy. Lockheed Martin, for example, has begun qualifying magnets from Australian and European sources for use in aircraft and missiles to comply with “no Chinese content” rules. Raytheon and others are funding research and development (R&D) into magnet recycling, allowing them to reclaim materials from retired systems and reuse them. In the meantime, some contractors have resorted to using up their inventory stockpiles of magnets purchased before the restrictions, or buying subcomponents from allied countries (e.g., purchasing an off-the-shelf motor from Japan’s Nidec that contains a Japanese magnet, rather than building a motor with a Chinese magnet).

These workarounds are bridge solutions until new Western magnet production comes online. By 2025, we anticipate a patchwork: some legacy programs will still rely on Chinese magnets under waiver, but any new defense program will source strictly from domestic or allied supply. For instance, the U.S. Navy’s upcoming projects are coordinating with the industrial base to utilize magnets from the VAC plant or other non-Chinese sources once they become available. The U.S. DoD is even considering a “certified magnet” list – suppliers that meet origin criteria – which would function like an approved vendors list for contractors. This trend means companies like VAC, Noveon, and EEC (SmCo) could lock in steady defense business. It also pressures subcontractors (e.g., a small motor manufacturer for a missile fin) to switch suppliers, which they are doing proactively.

EV and OEM Customers: For automakers, the shift in sourcing is more gradual but noticeable. Western OEMs have historically procured magnets indirectly, buying motors or components from tier-1 suppliers who, in turn, purchase magnets from China or Japan. Now, automakers are increasingly getting directly involved. GM’s direct deals with magnet producers are one example, effectively creating a vertically integrated pipeline for magnets into its cars.

Similarly, European automakers are engaging at the consortium level – for example, BMW and Volkswagen participate in EU industry working groups to source rare earths responsibly and have signaled that they will favor bids from motor suppliers who offer non-Chinese magnet options. Tesla’s approach (eliminating magnets) is unique, but even Tesla, in the short term, needs a secure magnet source for its current models. It reportedly adjusted its supplier mix in 2024 to purchase more motors from a new plant in Taiwan, which uses magnets sourced from Japan, to diversify away from its sole reliance on mainland Chinese magnets. Wind Energy (another major customer category for large NdFeB magnets in turbine generators) is also reacting: European wind turbine makers like Vestas and Siemens Gamesa are exploring sourcing magnets from the Neo Estonia plant and others once available, to reduce Chinese content in wind turbines installed inEurope (which is increasingly a requirement in government wind farmtenders).

One notable ongoing shift is the adoption of recycling and circular sourcing: Companies like Siemens have implemented pilot programs to recover magnets from end-of-life electric motors and reuse them in new motors. While small-scale, if scaled up by the late 2020s, this could become a modest yet essential source of magnet material for OEMs – essentially an internal supply loop that bypasses geopolitical constraints. It’s not a solution for growth demand, but it can supplement supply.

Summary of Sourcing Trends: Major customers in defense and EV sectors are actively reducing exposure to Chinese magnets in two ways: (1) Switching to new suppliers outside China as they come online (with transitional help from allies like Japan), and (2) Investing in alternative technologies to use fewer or no rare earth magnets.

The immediate few years (2024–2026) will see a hybrid approach – Chinese magnets will still be present in many products, as there isn’t enough non-Chinese supply yet. Still, they’ll often be behind a layer of integration (e.g., a “made in Japan” component containing Chinese material) to navigate regulations. Beyond that, as Western capacity ramps up, we can expect to see a more direct displacement of Chinese magnets in Western supply chains.

For market participants, this means a potential realignment of supplier relationships: Chinese magnet firms may pivot to focus more on the domestic Chinese and Belt and Road markets if Western demand wanes. In contrast, Western magnet firms could become acquisition or partnership targets (e.g., an auto parts giant might acquire a magnet startup to secure its supply).

Retail investors should watch for automakers announcing long-term supply agreements, as these effectively guarantee a buyer for new magnet production and can be a bullish signal for the supplier’s prospects. Already, the GM and Nidec deals have added credibility to VAC’s and Noveon’s business models.

Alternative Magnet Materials & Strategies

In parallel with scaling conventional rare earth magnet production, there have been noteworthy developments in alternate magnet materials and strategies during this period, as industries seek to mitigate supply risks:

Rare-Earth-Free Magnets: The holy grail is a magnet with comparable performance to NdFeB, but without the use of rare-earth elements. Niron Magnetics (opens in a new tab) (USA) is one of the leaders in iron nitride (FeN) magnet technology, as reported by REEx.

Its “CleanEarth Magnet” aims to achieve high magnetization without Nd or Sm. By late 2023, Niron had a pilot line and attracted investment from GM and Stellantis, cites Electrek (opens in a new tab).

While still in R&D, Niron’s progress, as evidenced by the filing of patents and a Time “Best Inventions of 2023” mention, suggests that these magnets could enter limited production in a few years. If successful, such technology would be a game-changer: it would undercut China’s stranglehold by removing rare earths from the equation. Japanese researchers and startups, such as Tokyo-based SBM, are also pursuing alloys like cobalt-iron alloys and other novel compounds. For now, these alternatives cannot fully replace NdFeB in EV motors or wind turbines, but they promise to be effective in lower-temperature or smaller-scale applications. Investors are keeping an eye, for instance, on the partnership between major OEMs and Niron, which indicates the market’s appetite for rare-earth-free solutions.

Soft Magnetic Alternatives (Motor Redesign): Some companies address the reliance on magnets by redesigning their motors. Induction motors and synchronous reluctance motors utilize no permanent magnets, relying instead on electromagnetic induction and specialized rotor geometry. Tesla’s high-performance Model S/X used an induction motor for years, demonstrating that performance EVs can be achieved without magnets (albeit with a slight efficiency penalty at certain loads). In 2024, suppliers such as Danfoss and Mahle promoted refined reluctance motor designs that approach the efficiency of magnet motors for electric vehicles (EVs).

If automakers like Tesla fully adopt these designs in their next-generation vehicles, demand growth for NdFeB could slow. However, it’s worth noting that for many applications (especially where size and weight are at a premium), permanent magnets remain the superior choice; thus, most automakers (GM, VW, etc.) continue to plan on using NdFeB motors for the foreseeable future, while perhaps mixing a few magnet-free models in their lineup. From a strategy standpoint, having a magnet-free option is a hedge against rare earth shortages. This is part of a broader “design around” strategy, such as using two slightly larger ferrite magnet motors in place of one NdFeB motor, or employing gearing to compensate for lower torque, engineering solutions that reduce dependence on any single material.

Ferrite and Alnico Magnets: These are older types of permanent magnets that contain no rare earths (ferrite uses iron oxide and barium/strontium; alnico uses aluminum, nickel, cobalt). They have lower magnetic strength but excellent temperature stability (alnico) and low cost (ferrite). There have been incremental improvements making these magnets more attractive for certain uses.

For example, Hitachi Metals (Proterial (opens in a new tab)) has marketed a new high-performance ferrite magnet (NMF series) that could potentially replace NdFeB in some automotive sensor motors and small e-mobility devices, cites Magnetics Business & Technology (opens in a new tab).

Ferrites are abundantly available and inexpensive, so any increase in their use can impact rare earth demand at the margins. Alnico, which contains cobalt and nickel, remains in use for specialty aerospace and electronics applications. Ironically, cobalt itself is primarily sourced from the Democratic Republic of the Congo, which has its own supply issues. No breakthrough has made Alnico competitive with NdFeB in motors, but it’s valued in high-temperature applications (since it doesn’t lose magnetism as quickly with heat). The period saw a modest revival of interest in these magnets as complementary solutions – for example, some electric vehicle (EV) charging infrastructure utilizes ferrite cores and magnets to reduce the rare earth content in power electronics.

Magnet Recycling: We touched on this, but it’s part of the broader strategy. Recycling doesn’t create a new type of magnet, but it creates a new source of material. Companies such as HyProMag (UK/Germany), REEcycle (USA), and Urban Mining/Noveon (USA) are developing methods to extract neodymium, dysprosium, and other rare earth elements from scrap magnets or magnet-containing components. Notably, in early 2025, U.S.-based REEcycle was awarded $5.1 million by the Department of Defense (DoD) to scale up its process for extracting rare earths from fluorescent lamp phosphors and magnets.

If recycling tech becomes efficient, it can provide a steady stream of local rare earth feedstock for magnet production, partially blunting China’s raw material advantage. This is an area where ESG-minded investors see a win-win: addressing e-waste and reducing the need for new mining. By 2025, recycling is expected to supply only a very small fraction of magnet raw material demand; however, its growth trajectory is positive, and government policies, such as the EU battery regulation, which includes motor recycling, will further drive its development.

In essence, the magnet industry is hedging its bets. The conventional path is being reinforced by building more NdFeB and SmCo capacity outside China; however, companies are also investing in alternatives that could, in the long run, reduce reliance on any single country or material. For investors, these alternative plays – whether startups like Niron or companies with recycling technology – represent higher-risk, higher-reward opportunities. They are not generating significant revenue yet, but they have the potential to disrupt the market in a few years. In contrast, backing the more proven magnet manufacturing expansions is a more straightforward, if lower-upside, way to tap the rare earth magnet theme.

Outlook and Takeaways for Investors

From January 2024 through May 2025, rare earth permanent magnets transitioned from a quiet cornerstone of industrial tech to a central battleground in global trade and national security.

While China still dominates, with over 80% of global production and tight export controls on key elements such as dysprosium and terbium, Western governments have begun reshaping the market through the use of aggressive policy levers. Magnet tax credits, defense procurement mandates, and critical raw materials acts across the U.S., EU, and allied states are accelerating non-Chinese magnet supply. But market participants must beware: any easing of trade tensions could prompt China to flood the market and undercut competitors with low prices, a classic state-capitalist squeeze tactic.

In this shifting environment, listed companies such as MP Materials, Neo Performance, Dowlais (via GKN), and Lynas Rare Earths offer investors access to the emerging non-Chinese magnet value chain. These players are expanding from upstream mining into downstream magnet manufacturing, supported by military contracts, automaker alliances, and government grants. MP’s full-stack magnet plant in Texas and Neo’s Estonia facility—targeting European automakers—stand out as critical tests of execution. Yet timelines, technical hurdles, and capital intensity remain major risks. Success hinges not just on demand from EVs, wind, and defense, but on securing long-term offtake contracts and proving reliability.

Meanwhile, China’s strategy is evolving. Its recent export curbs are a warning shot, and any escalation in trade conflict could trigger further restrictions or price hikes. This would benefit well-positioned Western producers in the short term, but long-term risks include demand erosion or substitution if magnet costs soar.

Supply chain players that control or secure non-Chinese feedstock (via mining alliances, recycling, or U.S.-based processing like Lynas’s heavy rare earth plant) will be best insulated. For investors, the message is clear to REEx. This market is becoming increasingly multipolar, strategic, and contested, offering both rare opportunities and significant risks, yet the Sino-dominance remains a serious concern.