By Robert Farago.

Carmakers around the globe are embracing electric propulsion, whether the volts are generated by a gasoline motor,
a fuel cell, a distant power plant or a combination thereof. New companies seem to be springing up overnight to take
advantage of the government’s desire (and money) to wean motorists from their petrochemical “addiction.” 
While everyone rushes to produce politically-correct powerplants, one fundamental question that remains largely
unexamined: 
From whence will manufacturers secure the raw materials that are needed to mass produce this new technology?

Back in the good old bad old days, cars were literally lumps of iron. 
The bodies were made from steel.
The engines from cast iron. 
Even as new features were added, the primary raw materials remained ore-based. New-fangled electrical accessories
like starters, power windows, power seats and stereos brought copper into that mix. As metallurgical science progressed,
aluminium and its alloys entered the mass market mix. No problem there: aluminium is the most abundant metallic
element on earth. It’s lightweight and eminently recyclable (today’s beer can is tomorrow’s bumper).
Dropping market prices continue to move the metal from exotic cars to daily drivers.

Along with various materials derived from petrochemicals, modern cars are made from iron, steel, aluminum
and copper. Manufacturers use other metals (e.g., magnesium) in structural and other applications,
but The Big Four reign supreme.

In the 1960s, a research effort between the Air Force and General Motors made a discovery: if you combine the rare
earth element neodymium with boron and iron you can make incredibly strong magnets. These magnets are mission
critical for the compact-yet-powerful motors used in today’s gas-electric hybrid vehicles. “Doping” the magnets with a
bit of dysprosium (another rare earth metal) makes them even more effective, helping them withstand the automotive
application’s high operating temperatures.

Industry expert Jack Lifton estimates that manufacturing the battery pack of a second generation Prius required
60 pounds of assorted rare earth metals. And there’s more. Carmakers use rare earths for catalytic converters,
computer chips, UV-filtering glass, LCD screens and solar panels. In fact, many of the new technologies that inform
advanced vehicles owe their existence—one way or another— to rare earths.

Thankfully, rare earths aren’t that rare. China has huge deposits of rare earth ores and (until very recently) little
regard for the environmental impact of mining and refining them. In 2007, China exported 49k tons of rare earth
products, down 14.93 percent. BUT the export value surged 51 percent to $1.179 billion. In 1992, Deng Xiaoping
stated “There is oil in the Middle East. There are rare earths in China. We must take full advantage of this resource.”

And so they have.

The U.S. used to be the world’s biggest producer of rare earths. That ended in the ’90s when the Mountain Pass
mining operation in California shut down due to “market pressure” (i.e., cheap Chinese product).
Environmental regulations also helped seal the mine’s fate; rare earth mining can produce some pretty nasty
byproducts like thorium.

And so the Chinese rare earth industry has grown unchallenged to the point where it essentially owns the market. 
Molycorp recently reopened the Mountain Pass operation. There are efforts underway to develop mines in Canada,
Australia (where Chinese companies just bought big portions of two Aussie mining companies), Vietnam and India.
As of now, none of these future mines offers significant competition to China’s efforts to dominate the rare earth market.

Adding to the problem: while there are mines producing rare earth ores and oxides elsewhere, China’s the only one
country on earth where the ores are refined into the rare earth metals. For the time being, no matter where the rare
earth materials are mined, the production pipeline flows through—and is controlled by—China.

So far, China hasn’t tried playing silly buggers with rare earth prices, as OPEC has been known to do with oil. 
However, any company that manufactures anything using rare earths is at the mercy of the Chinese government’s
production and pricing.

China has raised the export tax on some rare earth metals as high as 25 percent. Foreign companies aren’t allowed
to invest in exploration and mining. There are limits on foreign involvement in ore processing. Industries that use rare
earth metals are “encouraged” to produce their end product there.

Because China hasn’t curtailed supplies (i.e., raised prices significantly), there’s no interest in recycling rare earths
from discarded autos. When that wrecked hybrid is sent to the crusher, the copper, iron and aluminum in it will be recovered. 
The rare earth metals will not.

As the government pushes the automakers to improve mileage and cut emissions, they’re practically demanding
carmakers produce electric or hybrid-electric vehicles. Even though the government and industry know how important
these rare earths are critical to their environmental goals, they’ve failed to consider the potential impact of a “rare earth”
gap, trusting that the free market will provide the required raw materials at a cost-effective price.

For now, yes. In the future, who knows?