Few people outside of China can locate the Inner Mongolian city of Baotou on a map, but it is at the heart of one of the world’s most significant supply chain narratives. The largest rare earth element mine in the world, Bayan-Obo, is located nearby. Over the past thirty years, the area has produced so much of these materials that the nearby soil and groundwater are contaminated with fluorite and arsenic, and the tailings pond, a lake of radioactive thorium waste, has seeped into the local water table. Baotou is the tangible, environmental cost of the world’s rare earth supply chain; it is mostly unseen by those whose electric cars rely on it and has little bearing on policy discussions that treat rare earths as a theoretical geopolitical issue. The issue is neither distant nor abstract. It starts in a mine that is contaminating a populated area and ends in an electric vehicle motor.
Three elements—neodymium, dysprosium, and terbium—combine to power the high-performance permanent magnets found in the majority of EV motors, which is why this is significant outside of the immediate environmental context. The motors cannot achieve the efficiency and power density required by modern electric vehicles without them, or without suitable substitutes. It is hard to overstate how much China controls the processing and refining of these elements: the International Energy Agency estimates that between 85 and 91 percent of the world’s rare earth refining capacity is located inside Chinese borders. Approximately 94% of the high-performance neodymium-iron-boron permanent magnets used in electric vehicle motors are produced in China. For heavy rare earths, which include terbium and dysprosium, Europe is totally dependent on China. The US is still heavily dependent on Chinese processing, even though it has domestic deposits and one operational mining facility at Mountain Pass in California. In the words of Jonathan Rost, chief customer engineer at Valeo, a French supplier to Mercedes-Benz and Hyundai: “If you build a product where 90% of a key component is controlled by one country, you’re not very comfortable.”
| Topic | The Rare Earth Dilemma: Who Controls the Future of Electric Mobility? |
| China’s Control | ~60–70% of global rare earth mining. 85–91% of global processing and refining capacity (IEA). ~94% of high-performance neodymium-iron-boron (NdFeB) permanent magnets are used in EV motors. 100% European dependence on China for heavy rare earths. Europe 97% dependent on China for magnesium |
| Key Elements for EV Motors | Neodymium (NdFeB magnets — most widely used in EV motors); Dysprosium (heat-resistant, essential for high-performance motors); Terbium (demagnetization resistance). All three are classified as heavy rare earths — precisely where Chinese processing dominance is most complete. Global demand for neodymium is projected to exceed supply by 250% by 2030 |
| Current EV Dependency | 94.7% of light EVs currently use motors relying on rare earth elements (S&P Mobility). IDTechEx (Cambridge): over 75% of passenger EVs will still use rare earth-based motors by 2030; ~70% by 2035. Demand for permanent magnet rare earths surged 8%+ in 2023 and is projected to triple by 2030 (IEA) |
| Demonstrated Weaponization | 2010: China halted rare earth exports to Japan during the Senkaku Islands dispute — global prices spiked, exposing supply chain fragility. 2025: Beijing tightened export controls on six rare earth categories — European parts plants forced to shutter; Suzuki halted production. Export restrictions remained even after the US-China tariff pause in May 2025 |
| Reference | Rest of World — China’s Rare-Earth Dominance Is Hard for EV Makers to Escape (restofworld.org) |
Citing trade tensions, Beijing tightened export restrictions on six rare earth categories and related products last year, making the unease tangible. The immediate and instructive repercussions included Suzuki stopping production and the closure of several European parts plants. The rare earth export licensing procedure turned into a supply chain bottleneck. The rare earth export restrictions persisted even after the US and China decided to halt new tariffs in May 2025, indicating that they are a separately maintained tool of leverage rather than a trade negotiation chip. China had previously shown this willingness. China stopped exporting rare earth elements to Japan in 2010 due to a diplomatic dispute over the Senkaku Islands. The fragility of supply chains was revealed, global prices skyrocketed, and impacted countries declared plans to diversify. The majority of those plans were implemented slowly and insufficiently. The same leverage was used again fifteen years later, and the results were comparable.
In comparison to the scope and urgency of the issue, the Western industry’s response has been sincere but excruciatingly slow. In 2011, BMW started working on rare-earth-free motors, which are externally excited synchronous motors that use copper windings rather than permanent magnets. This was due to a sudden increase in the price of neodymium. At normal driving speeds, the company now claims to have designs that can match conventional motor efficiency. Renault and Valeo collaborated on a rare-earth-free motor; Valeo has since extended the project, but it won’t go into production until at least 2028, according to Valeo. Niron Magnetics, a Minnesota startup developing iron-nitrogen magnets to replace neodymium magnets, recently received renewed support from Stellantis and General Motors. Although it’s important to note that the company was rare earth-free until 2017 and then switched back, indicating how experimental this transition actually is, Tesla has announced that its next generation of motors, anticipated in 2026, will be rare earth-free. The journey from prototype to production is costly and time-consuming.
By 2030, over 75% of passenger EVs will still use rare earth-based motors, according to IDTechEx, a Cambridge-based research firm. By 2035, that number is expected to drop to about 70%. This is a reflection of the lengthy lead times between technological advancement and widespread use, not a forecast of failure. It does mean that the EV industry will be structurally vulnerable to the export policy of one nation for the rest of this decade, a situation that has not yet been resolved by diplomatic efforts. Building true alternative supply chains, according to Marina Zhang, an associate professor at the University of Technology Sydney who specializes in critical minerals and geopolitics, could require fifteen years and a substantial capital investment. The complication is that even those investments could be jeopardized if China decides to flood the market with cheaper, higher-quality rare earths once competitive alternatives approach viability.
Recycling is a viable but short-term solution. Currently, less than 1% of rare earth elements are recycled worldwide. The main feedstock for recycling, end-of-life magnets and EV batteries, won’t be widely accessible until after 2035. There is no infrastructure. Building it without either policy intervention or prices that continue to be high enough to justify the investment is not yet supported by economics. Recycling might eventually play a significant role in the solution. It is not a short-term solution to today’s dependency.
The contaminated city in Inner Mongolia, the European factory closures, and the motor prototypes that are three to four years away from production all give the impression that there is a structural irony at the heart of the green transition. The technology being used to lessen reliance on fossil fuels has resulted in a new reliance on resources under the control of a single nation, extracted through methods that have a significant negative impact on the environment locally, and processed through infrastructure that took decades to construct and is not easily replicated. The first step in dealing with it is to acknowledge that. It has taken a while for that acknowledgment to come.
