Raw Materials Europe's Achilles Heel: Rare Earths Today, Battery Raw Materials Tomorrow

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China controls 91 percent of the processing of rare earths. The battery value chain is also firmly in Chinese hands - another effective geopolitical lever.

Data, it was said not long ago, was the new crude oil and therefore the stuff that keeps industry running worldwide. But that is only half the truth. In fact, it has been clear for several months that car manufacturers and suppliers will not be able to maintain their production without access to rare earths - data or not.

China controls access, almost as a monopolist. The export controls of recent months have already led to the loss of entire shifts or even a halt in production for individual companies. China is now suspending export controls for the EU, as EU Trade Commissioner Maroš Šefčovič recently confirmed. But how long will China stick to it? Is the current suspension more than just a breather for European industry?

Experts led by Alexander Timmer, Partner and Managing Director at Berylls by AlixPartners, have analyzed the extent of Europe's dependence on rare earths from China and the raw materials problem that threatens to follow. "China doesn't just control magnetic materials," says Timmer: "Anyone who believes that the current crisis is limited to rare earths is mistaken - the next stage of escalation concerns lithium, cobalt and co."

Rare Earths

Plan B for E-Motors – Without China

China Controls 91 Percent of Processing

China has positioned itself as a supplier for almost the entire global market for rare earths. It has the corresponding deposits in its own country and has secured access to many other sources abroad. The ores are also processed almost monopolistically in Chinese factories - according to an analysis by the Supply Chain Intelligence Institute Austria, China controls 91% of the processing of rare earths. This means that China has created a global bottleneck for magnetic materials and maintains control over them.

Christian Grimmelt, Partner at Berylls by AlixPartners: "China also owns significant shares in mines for the extraction of battery raw materials such as lithium and cobalt. However, the situation is much more worrying in the refining sector. To cite just one example: 60 percent of lithium and 90 percent of graphite refining takes place in China. Europe, on the other hand, has almost no capacity in this critical process."

Without Its Own Expertise, Europe Remains Dependent

"The Chinese export and licensing regulations give Chinese companies a structural competitive and speed advantage over European greenfield projects," explains Jakob Rüchardt, Senior Consultant at Berylls by AlixPartners. Mai Khoa Le, Consultant at Berylls by AlixPartners, adds: "Without its own machine and process expertise, European industry remains dependent on China and therefore vulnerable." The experts see several fields of action in which Europe must take action in order to at least mitigate this dependency. The three most important are

• Building up in-house capacities not only in raw material mining and cell production, but also in the refining of battery raw materials in particular. Current projects should be expanded and supplemented by the even more critical intermediate processing step.
• Drawing up long-term supply contracts with countries rich in raw materials such as Australia, Canada or South American countries to diversify supply. At the same time, a recycling industry for critical raw materials must be established.
• Creating in-house expertise in key battery production processes. To this end, investments should be bundled and standardization driven forward by means of cross-industry cooperation.

Ultimately, the crisis surrounding rare earths is just a prelude to what the industry could face if it does not react decisively. The dual dependency on magnetic materials and battery raw materials makes rapid action essential. The focus must be on eliminating the bottleneck in the refining process.