Shares of Chinese rare-earth miners were heavily sold off following Tesla Inc.’s surprise announcement that the electric-vehicle maker will drop the use of the material in its future models.
Citing health and environmental risks that accompany mining the material, Colin Campbell, a Tesla official, said its “next drive unit” will use a permanent magnet motor that doesn’t use rare earths. The comments, made at Tesla’s investor meeting, caused JL Mag Rare-Earth Co. and Jiangsu Huahong Technology Stock Co. to slip as much as 10% on mainland China.
China dominates the world’s mining and refining of rare earths — a critical mineral used for everything from smartphones to electric vehicles and military hardware.
That overreliance has become an increasing pain point for global businesses as the pandemic squeezed supply chains, while geopolitical tensions between China and some western countries raise the risk of the material being used as a bargaining chip.
The sector saw short-lived rallies in 2019 and 2020 on speculation that Beijing may limit the export of the crucial metal amid trade tensions with the US. Developing sources of strategic minerals outside China has been flagged as a key priority for President Joe Biden.
The sector bucked an overall steady move in the CSI 300 benchmark for onshore shares, with Rising Nonferrous Metals Share Co. falling as much as 9.6%. In Hong Kong, China Rare Earth Holdings Ltd. slid nearly 3%, more than the twice the decline for the Hang Seng Index.