What A Successful Re-Shoring Strategy Could Look Like

MP Materials is building a new permanent magnet factory in Alliance, part of greater Fort Worth, Texas. This is part of a $700 million investment to re-shore a critical but often overlooked part of the electric vehicle (EV) supply chain – the manufacture of rare-earth permanent magnets. China is the dominant supplier globally controlling 87% of the global permanent magnet market, and thanks to its control of most of the world’s rare-earth production it is also the low cost producer. Yet MP Materials is building a fully domestic U.S. supply chain in the face of these challenges. There are six parts of its strategy that warrant a closer look, as they could serve as a model for others who are trying to re-shore the production of strategically important products.

1. Vertically integrate and control the inputs

Much of the concern around the security of EV supply chains has centered on lithium, the key metal ingredient of high-capacity batteries. Permanent magnets have gotten less attention, but they deserve a closer look. They play a critical role in compact and efficient motors like those required for EVs, the generators used in wind turbines, and a vast array of products ranging from computer disk drives to the motors used ubiquitously in just about anything that turns electricity into motion. This makes permanent magnets a critical component in most aerospace and defense systems as well. The Pentagon recently halted deliveries of Lockheed Martin F-35 Lighting II multirole combat aircraft (also assembled in Fort Worth) because the Honeywell-made turbomachine (part of the starter generator assembly) had magnet materials coming from China. The most powerful permanent magnets are made from an alloy of neodymium (Nd), iron (Fe), and Boron (B) in the form Nd₂Fe₁₄B. For those of you who aren’t chemists, this means two parts of the rare-earth element neodymium, 14 parts iron, and one part boron. As discussed earlier, rare-earths are a family of elements that most people have never heard of, yet they play critical roles in many modern technologies. Neodymium magnets are manufactured with either a sintering process, or a bonding process. General Motors
GM
was one of the original inventors of this magnet type in 1984.

MP Materials controls one of the world’s premier sources of rare-earth ores – the Mountain Pass mine in California 50 miles southwest of Las Vegas, Nevada. For decades it was the most important source of rare earths in the world. It’s also the only developed commercial source of ore in the Western hemisphere. Historically the company sold the mined ore to Shenghe Resources in Singapore (who had put money into the company) who in turn sold it to processors and magnet makers in China. With the increasing demand for EVs and wind turbines, it made a lot of sense to vertically integrate into magnet manufacturing, assuming you could find people who knew how to make them (and the company assures me that it has). Compared to the scramble we see among battery makers trying to secure supplies of lithium, MP Materials already has a lock on the supply of the most critical ingredient. That’s a huge advantage.

2. Acquire assets on favorable terms

The prior owner of the Mountain Pass Mine, Molycorp, Inc., had invested over $1.7 billion between 2011 and 2014, primarily in the construction of processing and separation facilities but also in implementing a process flow that used a lot of chemicals to extract the rare-earths. Molycorp went bankrupt, and MP Materials was able to acquire the mine and processing facilities in 2017 for $20.5 million. Acquiring assets on favorable terms is always a big plus, as it means you have less capital tied up (in this case, a LOT less).

3. Harness process innovation

After the ore is dug out of the mine, it needs to be processed to extract the rare earth metals, usually in the form of oxides, from all the other stuff you don’t want (called “gangue”). The Mountain Pass mine contains a mineral called bastnasite, and the first step is crushing the mined rocks and grinding them into a milled slurry. The slurry then goes to a froth flotation step where the bastnasite floats while the gangue is washed away to produce a mineral concentrate. MP Materials has optimized a process that allows recycling of 95% of the water used in flotation and tailings management. Compared to the predecessor company, MP Materials has been able to produce more than 3.2x the volume of concentrate using the same capital equipment. That means their costs per ton of rare earth oxide went way down.

In the next step, moving from concentrate production to the separation of individual rare earth oxides, MP implemented a new chemical extraction scheme to reduce costs and the associated environmental footprint. The previous owners had not optimized the process to maximize the production of Nd and Praseodymium (Pr), which are essential to magnets. Instead, they implemented a complex process that maximized production of all rare earths, including abundant but low-value elements that are not essential to magnets like cerium (Ce) and lanthanum (La). To optimize their processing facilities to maximize the production of Nd and Pr, MP Materials reintroduced a roasting circuit, which enables the removal of low-value cerium early in the refining process and dramatically reduces the energy, processing chemicals, and wastewater required to produce higher-value NdPr. This material is what MP Materials plans to transform into magnets in its new Fort Worth factory.

4. Secure stable demand

Investors always get nervous about large production operations that require big capital investments. How am I going to earn a return on my investment? Who’s going to buy what we produce? One solution is to secure an “offtake agreement,” which means contracting with a customer to buy the output. MP Materials signed up General Motors (GM) to buy rare earth materials, alloys, and finished magnets for the electric motors that it will use in the GMC Hummer, Cadillac LYRIQ, Chevrolet Silverado, and other EV models that will use its Ultium vehicle platforms, with a gradual production ramp beginning later this year.

Offtake agreements are quite common for many green energy projects, as they provide a degree of demand certainty for investments that take a long time to earn a return. Many wind energy projects don’t get started with construction until an offtake agreement is signed. Another possibility is a direct project investment: GM invested $650 million in Lithium Americas Corporation to help it develop the Thacker Pass mine in Humboldt County, Nevada.

5. Take advantage of interim subsidies to build scale

One of the forces that really makes this whole project work are subsidies for the production of critical minerals under Section 45X of the Inflation Reduction Act (IRA). This provision provides a 10% tax credit for the production of rare earths at Mountain Pass and other critical minerals production facilities across America. But Matt Sloustcher, the head of Government Affairs at MP Materials, pointed out that “in 117,000 words of the Inflation Reduction Act, the word magnet was not actually printed once.” To fill this gap, members of Congress recently introduced legislation to provide a production credit for the manufacturing of permanent magnets. Of course, eventually any subsidies will come to an end, and in the meantime MP Materials can build scale and come down the learning curve on cost. This is exactly what Chinese EV manufacturers did, so it’s not a bad model.

6. Choose a location that wants you, one where you can access talent

MP Materials chose Fort Worth because the city wanted them. “We recognized the importance of these magnets when it comes to domestic infrastructure, and how important they are to ensuring that Texas and the U.S. has direct access to these kinds of technologies,” explained Robert Sturn, Director of Economic Development for the City of Fort Worth. “We wanted to do everything we could to help out and ensure that Fort Worth could be part of it.” That included a seven-year tax abatement, a space in Alliance that was permitted for heavy industrial, which meant MP Materials was able to quickly secure permits to get construction going. Speed of permitting is an area where the U.S. suffers badly in comparison to abroad.

Workforce availability is also key. The Materials Science and Engineering Department at Texas A&M is growing quickly and will soon be one of the largest Materials Science departments in the country. Locally, the University of Texas at Arlington is heavily engaged in training next-generation engineers, and Tarrant County College is helping to teach the skills MP Materials is looking for in new employees.

MP Material’s domestic manufacturing plan is a great example of what a re-shoring strategy could look like. Let’s hope it works.