Eric Onstad

LONDON (Reuters] – Schaeffler is a German automotive parts supplier. The deal will ensure that Europe has rare earth magnets for the company’s burgeoning electric vehicle motor business. A Schaeffler executive confirmed to Reuters.

The agreement is first to be signed by an European supplier of auto parts or automaker in the area for rare earths.

To reduce dependence on China, the European Union has been leading a push to increase domestic production of super-strong magnets and rare earths.

Schaeffler and Norway’s REEtec have reached a 5-year agreement to provide rare earth oxides starting in 2024. Andreas Schick is Chief Operating Officer at Schaeffler.

He refused to disclose the amount of the transaction. This information will be made public on Wednesday.

In an interview, he stated that “we are changing into an electric motor supplier” and were ramping up.

“We need to be able partners on rare earth, and not just the traditional supply chain via China. We also need a local supply network for Europe.

In recent years, automakers have made deals with miners to obtain battery raw materials like cobalt and lithium. However, such agreements have not been common in the rare earths industry.

General Motors Co. (NYSE:), reached a December agreement to source rare Earth magnets for the United States. However, this was the first European-based deal.

Britain, the United States and Europe are attempting to develop magnet and rare earth industries in their countries to reduce dependence on China. China supplies 98% Europe with permanent magnets.

Schaeffler, a world leader in bearings it supplies to automobilemakers like Volkswagen (ETR) and General Motors Honda, mainly purchases manufactured parts from Tier 2 subcontractors.

Schick stated that the company’s emphasis on sustainability led it to source raw materials instead of magnets ready-made.

Schaeffler is Germany’s fifth largest auto manufacturer by revenues. They are also working with European partners in order to make permanent magnets from the rare earths produced by REEtec.

When asked if Schaeffler was prepared to pay a premium for domestically-produced magnets produced in a sustainable and transparent way, Schick said:

From a commercial point of view, it’s no walk in the park. It’s challenging, but it’s part of our commitment to sustainability.

He did not give any indication as to the cost.

The auto industry is an established industry that has tight margins. However, industry sources say that automakers are increasingly accepting that rare earths from Europe must be paid more.

Industry analysts believe they can be promoted as being more durable, and may even justify charging a higher price to customers.

CLEANER TECHNOLOGY

While rare earths aren’t uncommon, they can be toxic. Complex processing is needed to break down the ore into 17 different elements. The alloys then used for a variety of electronic devices.

Privately-held REEtec uses a cleaner technology needing less energy and under which nearly all the chemicals used in processing are recovered and reused, said Chief Executive Sigve Sporstøl. He did not specify the amount of product to be made.

REEtec started a demonstration facility in 2019; the deal allows the company to construct a commercial separation plant, and source raw materials from Vital Metals, Canada. Production began last year.

Schaeffler also owns an industrial division and wants permanent magnets in stock to help it become a global leader in electric drivetrains for the rapidly-growing EV market.

The EU predicts that demand for permanent magnetics in EVs or wind turbines could increase by as high as tenfold between 2050 and 2050. Both the EU and Britain are committed to reducing net greenhouse gases emissions to zero.

Schaeffler’s E-mobility Business generated orders worth 3.2 billion euro last year. These orders represent nearly one-third of all orders placed by its Automotive Technologies division. This is much more than the original goal of 1.5 billion- to 2 billion euros for emobility.