Schaeffler Signs First European Rare Earth Deal

German auto parts supplier Schaeffler Group has signed its first European rare earth deal to secure supplies of rare earth magnets from Europe for its electric vehicle (EV) parts business, Reuters reports.

This is reportedly the first agreement for European automotive industry suppliers or automakers to source rare earths in the region. The EU is leading the push for domestic production of rare earths and super magnets used in electric cars and wind turbines to reduce dependence on China.

Schaeffler has reached a five-year European Rare Earth Deal with Norway's REEtec to supply rare earth oxides starting in 2024, said Andreas Schick, the group's chief operating officer.

In an interview, Schick said, "We are transforming into an electronic motor supplier. In rare earths, we need competent partners, not only through the standard supply chain in China, but we also need a local supply chain in Europe."

In recent years, automakers planning to dramatically increase the production of electric vehicles have struck contracts with miners for battery raw materials such as cobalt, lithium, and nickel, but such deals have been limited in the rare earth sector.

Schaeffler is a leader in supplying bearings to automakers such as Volkswagen, General Motors, and Honda, often purchasing manufactured parts from subcontractors known as Tier 2 suppliers.

Schick said the company's focus on sustainability led it to source raw materials rather than off-the-shelf magnets for the first time. Schaeffler, Germany's fifth-largest automotive supplier, is also working with European partners to produce permanent magnets from rare earths processed by REEtec.

When asked if the group was prepared to pay a premium for domestically produced magnets produced in a sustainable and transparent manner, Schick said, "From a business perspective, it's a challenge, but it's our commitment to sustainability."

As a mature industry with razor-thin margins, the auto industry is known for its focus on cost savings, but industry sources say automakers and their suppliers may prefer rare earths sourced from Europe, which could make them pay more.

Industry analysts say they can be advertised as more sustainable, which may justify charging customers higher prices. Rare earths are not rare, but they require complex processing, which can produce toxic waste, separating the ore into 17 separate elements and producing a range of alloys used in electronics and electric vehicles.

Privately held REEtec uses a cleaner technology where almost all chemicals used in processing are recycled and reused, says CEO Sigve Sporstøl. Since 2019, REEtec has been running a demonstration plant where the company will build a commercial separation facility to source raw materials from Canada's Vital Metals (VML.AX), which began production last year.

The group hopes to lock in the supply of rare earth permanent magnets to support its plans to become a major global supplier of electric drive systems to the fast-growing electric vehicle industry.

The EU expects demand for permanent magnets for electric vehicles and wind turbines to increase as much as tenfold by 2050 when the EU and the UK have committed to reducing net greenhouse gas emissions to zero.

Schaeffler's electric vehicle business generated 3.2 billion euros in orders last year, accounting for almost a third of its total orders for the automotive technology division, well above the original target of 1.5 billion to 2 billion euros for electric vehicles, the financial report showed.

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