This is part two of a two-part story on Tesla's decision to move away from rare earth magnets in its electric vehicle fleet. The first part looked at whether the move signals a broader trend for EVs.

Tesla Inc. might have limited options to replace rare earth magnets in its next-generation electric vehicle motors as the company moves away from rare earth metals to reduce environmental and supply risks, analysts said.

Companies across the EV supply chain have faced regulatory and investor pressure to meet higher environmental, social and governance standards. Nearly half of all Tesla vehicles made in the first quarter of 2022 were equipped with a lithium iron phosphate battery containing no nickel or cobalt as part of a move to cut reliance on metals with supply or environmental issues.

Now Tesla is creating a permanent magnet electric motor that doesn't use any rare earth metals, an executive said at the automaker's March 1 investor day. Colin Campbell, vice president for powertrain engineering, said the new design would lower costs, use fewer "constrained commodities" and mitigate "environmental and health risks" of rare earths mining.

Ferrite magnets, Tesla's most likely alternative to rare earth magnets, come with their own potential environmental issues, and another option, tetrataenite, is still years away from being viable, analysts said.

Assessing environmental impact

China has about a third of the world's rare earth reserves but accounted for about 70% of production in 2022, according to the U.S. Geological Survey. Milling, smelting and separation are contributors to rare earth-related pollution in China, as the processes introduce contaminants to the environment.

Rare earth elements such as terbium and dysprosium are leached out of China's unique ion-adsorption clay deposits by adding oxalic acid or sulfuric acid, which can pollute nearby water and land, said Yang Jiawen, a rare earths analyst at Shanghai Metals Market. Smelting and separation use ammonium bicarbonate and phosphorus, which can contaminate water, the analyst said.

"Today, there are more supply options than just China/Myanmar and others on the cusp of starting production — options that are transparent, close to home (for Tesla in particular) and substantially less impactful on the environment than the China production of yesteryear," Adamas Intelligence said in a March 2 note.

The environmental footprint of an electric motor should also consider industrial suppliers and other downstream partners, according to miner Lynas Rare Earths Ltd.

One of Lynas' life-cycle assessments analyzed manufacturing data from two electric motor pumps: an induction motor with a copper coil electromagnet and a permanent magnet motor that used neodymium-iron-boron magnets, COO Pol Le Roux said in an email interview.

"The results showed that the manufacturing of the pump from rare earth permanent magnets had 50% lower carbon dioxide equivalent emissions, and over 10 years will produce 75% lower carbon dioxide equivalent emissions," Le Roux said.

Strength, price trade-offs

Canaccord Genuity expects Tesla's new motor will use ferrite magnets, which are less powerful but are made from more abundant materials such as iron, according to a March 2 note. Tesla CEO Elon Musk signaled a focus on iron when he said at investor day that "the vast majority of heavy lifting for electrification will be iron-based cells."

Whereas ferrite permanent magnets are less expensive than rare earth magnets, they only have a third of the latter's magnetic strength, Yang said, so Tesla would have to sacrifice EV performance and motor size to adopt ferrite magnets.

A 2014 life-cycle assessment of neodymium magnets and ferrite motors showed that "although the [China-made neodymium] magnet has a higher environmental impact than the ferrite magnet in terms of a mass-based magnet-only comparison, the reduced weight of the magnet combined with the smaller weight of the copper wires and steel in the assembly leads to the [neodymium] servomotor having smaller impacts in all categories," Adamas said.

Even accounting for environmental and health impacts related to China’s supply chain, Adamas concluded "environmental footprint of a motor using ferrite can be worse" than using rare earths.

Yang said another possible replacement for rare earth magnets is tetrataenite, an iron-nickel alloy with properties similar to rare earth magnets. In October 2022, University of Cambridge scientists announced a new way to mass-produce tetrataenite by adding phosphorus, one of the earth's most abundant elements. But the technology could be up to a decade from commercial viability, Yang said.

Even if Tesla successfully develops rare earths-free EVs, Chinese automakers would take up Tesla's share of rare earths demand, Yang said.

Tesla did not respond to multiple requests for comment for this story.

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