Europe’s EV Makers Line Up At Estonia’s Rare-Earth Magnet Plant

Executives from Europe’s electric-vehicle industry are trekking to the continent’s sparsely populated northeastern parts to queue for something they struggle to find anywhere outside of China: rare-earths magnets that are essential components in EVs.In Narva, an Estonian industrial town that sits across the river from Russia, Canadian company Neo Performance Materials has built a $75 million magnets plant that’s opening on Friday. Neo’s initial output will supply components for as many as 1 million cars annually.

The ribbon-cutting is happening as carmakers rev up EV production in a critical phase of Europe’s energy transition. The plant in Estonia is offering a chance to lock in supply chains at a time of global trade tensions, including over rare earths with China.“This is the most important critical materials project happening in Europe today,” Neo CEO Rahim Suleman said in an interview ahead of the factory opening.Europe and the world’s vulnerabilities were exposed earlier this year when Beijing in April heavily restricted the export of some of its rare earths in retaliation against US President Donald Trump’s decision to hike tariffs on Chinese goods.

Neo’s Estonian plant manufactures neodymium magnets, one of the products restricted by China. The magnets convert the electricity stored in a battery into motion, helping rotate the wheels of EVs. They are also used widely from smartphones to wind turbines and fighter jets.A shortage of rare earth magnet supplies earlier this year forced Ford Motor Co. to idle production of its Explorer sport utility vehicle in Chicago for a week.

Neo — which is also active in chemicals and metals and has 10 manufacturing plants globally, including in the United States and China — made the decision to build the new factory in Estonia in late 2022, months after Russia’s full-scale invasion of Ukraine disrupted Europe’s economy. Neo managed to complete its site on time and within budget, Suleman said.“With the exception of Neo there is no EV traction motor magnet manufacturing capacity in the West,” Marvin Wolff, an analyst at Paradigm Capital, said in an Aug. 12 report.The plant will initially produce 2,000 tons of magnets per year, about a tenth of the demand in Europe. The factory will source its own raw materials from Australia.

Neo has signed “multiple” five- to seven-year contracts in the range of $50-$100 million, Suleman said, adding that major deliveries are set to begin in 2026.

“Customer demand is through the roof,” Suleman said.

German car parts supplier Schaeffler AG is among the buyers, Reuters reported earlier. Another major customer will be announced on Friday in Estonia.Neo plans to triple capacity there after an expansion that could begin in 2027. It would cater to soaring demand fueled by European carmakers, who are pivoting toward EVs ahead of a 2035 deadline to ban the sale of new vehicles with combustion engines.While there are signs that the EU directive may be watered down — German Chancellor Friedrich Merz last week backed a bid by his country’s carmakers to soften the rules — the direction of travel toward more EVs isn’t in doubt.

BMW, Volkswagen and Mercedes-Benz Group AG all unveiled new EV models at the Munich auto show last week that they said would put them in a position to take on intensifying competition from China.The magnets trade is expected to be among the thorniest items for negotiation when Trump and Chinese President Xi Jinping are scheduled to meet at the end of October on the sidelines of the Asia-Pacific Economic Cooperation meeting in South Korea.While China has recently eased its rare-earths controls — exports rose to a highest monthly level in August since at least 2012, according to Bloomberg calculations based on Chinese customs data — Beijing’s earlier weaponization of its market dominance has spurred Western companies to look for alternative suppliers.

Last month, General Motors Co. signed a deal with Texas-based Noveon Magnetics Inc. to secure rare-earth magnets for its full-size pickup trucks and SUVs. Along with contracts with Las Vegas-based MP Materials Corp. and E-Vac Magnetics, a South Carolina-based unit of Germany’s Vacuumschmelze GmbH, GM plans to get the majority of rare-earth magnets it sources directly from domestic suppliers.

MP Materials, the sole US rare earths miner, only plans to start commercial production of magnets later this year and it’s expected to operate at modest levels of production prior to a Pentagon-funded expansion.Neo, in this respect, appears to have an edge — much to the delight of Canada and the EU. Estonia, an EU member, is currently the only place outside of Asia that does rare earth separation and refining.European Commission President Ursula von der Leyen passed around a magnet from Neo’s plant in the Baltic country at a Group of Seven meeting in Kananaskis, western Canada in June. Canadian Prime Minister Mark Carney also brandished a sample during a speech there, hailing his nation as one with “immense potential” as a rare-earths supplier.

“Everyone else frankly in the industry is generally making promises about what they’ll be doing in the future,” Neo’s Suleman said. “We built it in under 500 days.”

Source: Bloomberg Europe