Shares of Chinese rare earth miners sold off heavily after electric car maker Tesla Inc. 's surprise announcement that it would no longer use the material in future models.
Tesla executive Colin Campbell, citing health and environmental risks associated with mining rare earths, said Tesla's next drive unit will use a permanent-magnet motor that doesn't use rare earths. Tesla's comments, made at an investor meeting, sent shares of JL Mag Rare Earth and Jiangsu Huahong Technology Co down more than 7 percent on the Chinese mainland.
China dominates the global mining and refining of rare earths, vital minerals used in everything from smartphones to electric cars to military hardware.
This over-reliance has become a growing pain point for global companies as the coronavirus pandemic squeeges supply chains, while geopolitical tensions between China and some western countries have raised the risk that rare earths could be used as bargaining chips.
The sector enjoyed a brief rebound in 2019 and 2020 on speculation that Beijing might restrict exports of the key metal amid trade tensions with the US. Developing strategic mineral resources outside China has been identified as a key priority for President Biden.
Rare-earth mining stocks bounced back from an overall flat CSI 300 index, with Rising Nonferrous Metals Share Co. closing down 6.7 percent. In Hong Kong, China Rare Earth Holdings Ltd. closed down 2 percent.
While shares in rare earth miners fell sharply on the news, there are also doubts about the viability of alternatives.
Yang Jiawen, analyst at Shanghai Metals Market, a research house, said: "If there is a complete replacement for rare earths based on existing technologies, it will deal a big blow to the industry." "Since Tesla has not disclosed any information about possible replacements, I am cautious about this news."
Campbell said Tesla has designed its own transistor package that uses 75 percent less silicon carbide than before, which also triggered a sell-off in some related stocks. Rohm closed down 5.2 percent in Tokyo after Wolfspeed fell 5.4 percent in after-hours trading in the United States on Wednesday.
"Silicon carbide is an amazing semiconductor, but it's also expensive and really hard to scale," he said. "So using it less is a big win for us."
Tesla's other Chinese suppliers also fell as much of the deal was devoted to efforts to keep costs down, raising margin concerns for companies that count Tesla as an important customer. Ningbo Xusheng Group fell 7.6 percent and Ningbo Topu Group fell 5.3 percent.
