The clean energy transition needs the unique magnetic and electrochemical properties of rare earth elements for the design of the most efficient electric motors and generators. Their widespread use ranges from electric vehicles and wind power generation to industrial applications, offering the best possible performance with the lowest possible weight. They are critical to the transition towards electrification and clean power, and securing a sustainable and diversified supply of rare earth elements is a permanent concern for all industrialised countries.

Efficient electric motors

There are 17 rare earth1 elements (REEs), of which four – neodymium (Nd); praseodymium (Pr); dysprosium (Dy); terbium (Tb) – are used to manufacture high performance permanent magnets known as neodymium-iron-boron magnets (NdFeB) for permanent magnetic electric motors. The first two contribute to magnetic strength while the latter two are added to improve resistance to demagnetization, particularly at high temperatures. In electric vehicles, permanent magnets are not only used for the electric drivetrains, but also in safety and driver assistance features such as power steering as well as in auxiliary motors and pumps. In addition, permanent magnet electric motors are found in countless industrial applications (automation; robots; actuators), elevators, air conditioners, heat pumps and cooling systems, enhancing energy savings and performance.

Permanent magnets are the largest demand driver for rare earth oxides, accounting for nearly 30% of their total global volume. Other users are catalysts for air pollution control, batteries, mobile phones, televisions, optical fibre applications, medical and defence equipment. REEs are considered indispensable in our modern society. Termed ‘industrial vitamins’, small quantities of REEs are essential to achieve high performance, energy efficiency and the miniaturisation of products, underpinning their vital role in the decarbonisation of the energy and mobility sectors.

Rare earth oxides demand by end use in 2020

Source: Roskill, Polar Capital.

Where are these ‘vitamins’ found and processed?

REEs are not ‘rare’ in that some, such as cerium (Ce), are commonly found in the Earth’s crust at 67 parts per million (ppm) – copper is at 60 ppm, nickel at 84 ppm, while dysprosium and terbium are much less abundant, at 5.2 ppm and 1.2 ppm respectively2. What makes them rare is they are not easily found in concentrations high enough for economical extraction as they rarely exist in pure form and are usually found within other minerals.

Globally, there are 120 million metric tons of known REE reserves while the production volume of total rare earth oxides were close to 280,000 metric tons in 20213. China is the biggest source of supply, at 168,000 metric tons, followed by the US, Myanmar and Australia at 43,000, 26,000 and 22,000 metric tons respectively.

China dominates the rare earth supply

Despite only accounting for 35% of total known REE reserves, China accounts for 61% of global mine production, 87% and 94% of processing and permanent magnets’ production respectively. The repercussions of the world’s heavy dependence of REEs from China was seen when it introduced export quotas in 2011, and events like the US/China trade disputes in 2019 saw prices spike sharply. Since the World Trade Organisation’s ruling against China in 2015, it has replaced the export quotas with production quotas and most of these quota licences are currently held by state-owned companies. The country could also restrict REE supply under its export control laws, further fuelling uncertainty in the future of supply.

REE mining, processing and permanent magnet production by country

Rare earth mining
Rare earth oxide processing
Rare earth permanent magnets
Source: Polar Capital’s estimates, U.S. geological survey: mineral commodity summaries January 2022, ERMA: rare earth magnets and motors 2021.

Rare earth permanent magnets in electric vehicles

Permanent magnet synchronous motors (PMSMs) are currently the leading choice for high performance electric vehicles due to their high efficiency, compact size and high power density. Other options include the use of induction motors which do not require permanent magnets and are simpler in design but are also less efficient and heavier. A well-designed PMSM motor could have 5-10%4 higher efficiency than an induction motor, thereby reducing power consumption. Hence, car manufacturers are able to use smaller battery packs for the same range, saving on battery cost, weight and space which are all important considerations.

Assuming an average efficiency gain of 5% from a PMSM motor relative to an induction motor, we estimate a one-off, upfront saving of $450 per car based on using a smaller sized battery, reducing its weight by 19 kg and saving 10 litres of space at the same time. In addition, the energy savings over the lifetime of the car accumulate to $600. These benefits compare to a slightly less favourable bill of material cost difference of $30-50 for a PMSM compared to an induction motor. The combined weight of metals used in a PMSM motor is approximately 5kg lower than those used in a comparable induction motor as significantly less copper is needed, therefore offsetting the additional cost of REEs5.

Economic benefits of an EV PMSM versus induction motor

Source: Polar Capital’s estimates.

Currently, PMSM accounts for about 80%6 of the total electric vehicle traction motor market. We expect this to reach 90% penetration by 2030. Besides traction motors, each modern vehicle can have more than 1407 other micro-motors, many of which increasingly use permanent magnets to power vehicle functions and accessories such as power steering, seats, windows, sunroof, heating and air conditioning, and auxiliary pumps.

NdFeB magnet components in a plug-in electric vehicle

Source: Polar Capital, illustrations by Storyset,

Rare earth permanent magnets in wind turbines

REE permanent magnets are also widely used in wind turbine generators. Direct drive turbines avoid the use of gearboxes and use permanent magnets, also known as direct drive permanent magnet synchronous generators (DD-PMSG). They allow generators of a lower weight to operate with higher efficiency and fewer moving parts therefore reducing maintenance requirements8. DD-PMSGs are used in offshore wind farms where high reliability is key, resulting in a 60% market share globally. In the onshore wind market, DD-PMSGs accounted for 20% in 2020, increasing from a 10% market share a decade ago9. With increasing power per tower as turbines become larger and taller, permanent magnet generators will become the solution of choice even more in the future as they offer greater efficient and lighter configurations. We expect the shares of permanent magnet generators in both offshore and onshore wind turbines to further increase.

Demand for NdPr set to increase

Neodymium-praseodymium (NdPr) is by far the most important REE with regards its proportions within a magnet, also representing the vast majority of the total REE market value today. The NdPr oxide market value is currently estimated at around $9.5bn, over 70% of the total REE market valued at $13bn10. According to our own estimates, demand for NdPr is expected to increase by 2.5 times by 2030, presenting a CAGR of c9%. Electric vehicle powertrains and wind turbines show the fastest CAGR at 23% and 12% respectively. Together with automotive accessories and ‘other e-mobility’, they will account for slightly over 80% of the increase in total NdPr demand in 2030.

Increase in NdPr demand

Source: Polar Capital.

Securing a diversified supply

Looking ahead, a sustainable and diversified REE supply is vital to enable the clean energy and smart mobility transition. The Covid pandemic demonstrated the ripple effects disruption in one part of the supply chain can have on the supply of materials and components to the rest of the world. Geopolitical instability, like the ongoing coup in Myanmar and past events in China, highlighted these supply risk concerns on REEs.

Recognising the vulnerability of the current supply chain, US President Biden’s administration has made securing a domestic supply chain for critical minerals such as REEs one of the key priorities under its infrastructure bill. Among several public funding and support programs, one was an allocation of $140m to demonstrate the viability of a fully integrated REE facility11. Similarly, the European Raw Materials Alliance12 has released an action plan that includes funding and support for REE mining, magnet production and recycling, therefore catalysing new investment opportunities.


Addressing the environmental and social impacts of mineral development is essential, such as the emissions associated with mining and processing, risks arising from insufficient water and waste management, and impacts from a lack of worker safety protection and human rights. In Inner Mongolia’s Bayan Obo, China, accounting for 45%13 of global rare earth production, huge amounts of mine tailings that include toxic chemical elements, heavy metals and radioactive material are not properly managed, causing severe environmental and health damage. In countries where environmental costs are low, artisanal and small-scale mines often use rudimentary methods such as acid baths to extract and process REEs.

However, there are opportunities to engage in sustainable mining practices and some companies are already using technologies that enable closed loop water recycling, the reduction in chemical use and ensure the proper treatment and disposal of waste. Researchers are investigating extraction methods that use less harmful chemicals, as well as non-chemical materials like bacteria, and also recovering REEs from waste streams. Currently, only around 1%14 of REEs are recycled from end-products given the difficulty of separating these elements from existing alloys, while recycling the ‘swarfs and scraps’ during magnet manufacturing has already become more common.

Given buoyant demand, with limited new supply expected in the near term due to long project lead times and more stringent environmental regulations posing higher hurdles for new permits, rare earth metals such as NdPr are forecast to remain in tight supply over the next few years. Industrialised countries will have to develop more comprehensive strategies, establishing a resilient supply chain from mining to processing and magnet manufacturing, thereby reducing the dependence on dominant China’s REE industry.

The Polar Capital Smart Energy and Smart Mobility funds have a selected exposure to rare earth mining and magnet production companies we consider to be in a strong position, profiting from the current tight supply situation as well as from the initiatives worldwide to secure a sustainable and diversified supply.

1. The rare earth elements (REE) are a group of 17 metals that comprise the lanthanide series of elements in the periodic table. Namely, lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), promethium (Pm), samarium (Sm), europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er), thulium (Tm), ytterbium (Yb) and lutetium (Lu) in addition to scandium (Sc) and yttrium (Y).

2. Jefferson Lab,

3. U.S. geological survey, mineral commodity summaries, January 2022

4. Polar Capital’s estimates, assumptions based on battery pack of 60kwh, battery cost USD150/kWh, lifetime of an electric vehicle 200’000km, energy density of battery pack 0.157 kWh/kg and 0.3kWh/l, electricity costs 0.30 USD/kWh, BNEF Electric Vehicle Outlook 2021, Adamas Intelligence 2021: Rare earth market outlook. Only the weight and cost of direct materials are considered

5. Polar Capital’s estimates, assumptions based on battery pack of 60kwh, battery cost USD150/kWh, lifetime of an electric vehicle 200’000km, energy density of battery pack 0.157 kWh/kg and 0.3kWh/l, electricity costs 0.30 USD/kWh, BNEF Electric Vehicle Outlook 2021, Adamas Intelligence 2021: Rare earth market outlook. Only the weight and cost of direct materials are considered

6. Wood Mackenzie: Future Facing Mined Commodities 2022, Adamas Intelligence:

7. Neo Performance Materials investors presentation Q4 2021,

8. Permanent magnet generators use the magnetic field of strong rare-earth magnets instead of electromagnets. They do not require slip rings or an external power source to create a magnetic field. They can be operated at lower speeds, which allows them to be powered by the turbine shaft directly therefore, do not require a gearbox. This reduces the weight of the wind-turbine nacelle and towers can be produced at a lower cost. Therefore,  leading to lower maintenance costs, improved reliability and efficiency.

9. IEA May 2021: The role of critical minerals in clean energy transitions

10. Polar Capital’s estimates, prices as of 22.05.2022 from Bloomberg

11. , US Department of Energy: America’s strategy to secure the supply chain for a robust clean energy transition February 2022

12. European Raw Materials Alliance: Rare earth magnets and motors, a European call for action 2021,

13. Contamination and health risk assessment of heavy metals in road dust in Bayan Obo Mining Region in Inner Mongolia, Li K., Liang T., Wang L., Yang Z., 2015,

14. Current opinion in green and sustainable chemistry Volume 13, 2018: Recycling of the rare earth elements, Simon M. Jowitt, Timothy T. Werner, Zhehan Weng, Gavin M. Mudd