Last week we witnessed a dramatic turn for companies tied to
rare earths elements (REEs).
Australian producer Lynas Rare Earths [ASX:LYC]
fell 11% last Friday, while Arafura Rare Earths
[ASX:ARU] shed around 10%.
Chinese producers, accounting for around 90% of global
production, also fell hard.
So, what drove the commodity-wide sell-off?
At its much anticipated investor day presentation in Texas,
Tesla revealed that it was looking to remove rare earth
metals from its next-generation vehicles.
The market viewed this as a big deal in terms of the outlook for
REEs
You see, neodymium and
praseodymium (NdPr) are two REEs used in permanent
magnets for electric vehicles (EVs).
At first glance, Teslas announcement puts a major dent in the
demand outlook.
But dig a little deeper, and things may not be so bad for this
poorly understood commodity.
Ill get to that point in a moment.
But first up, whats at the root of Teslas change in
strategy?
The answercost cutting.
According to Tesla, theyre looking to reduce manufacturing costs
by up to 50% while also scaling up its global vehicle sales from
1.3 million to 20 million vehicles by
2030.
Its all part of the grand plan to get EVs into the hands of the
mass consumer.
However, the company was light on detailsengineers outside Tesla
ranks have little idea how the company is set to revolutionise its
EV motor without rare earths magnets.
You see, NdPr magnets are the superior choice when it comes to
EV production.
They offer significant performance benefits, enabling the
development of compact, torque- and power-dense electric
motors.
According to some experts, though, replacing rare earth magnets
from its next-generation fleet will inevitably compromise
efficiency.
In EV design, theres a fine line between cost and
performance.
But Tesla looks to be shifting dramatically toward the cost
saving sideslashing production expenditure to deliver low-cost EVs
for the mass market.
Its even looking to skip the critical step of building a
prototype model in the name of saving cash and fast-tracking its
newest model into production.
Theres valid reason car manufacturers build prototypes before
going into mass production, and it goes beyond glossy magazines and
marketing
Its a critical step that allows engineers to iron-out faults
under normal driving conditions.
Any major failings could have a profound impact on the companys long-term outlookits
PR could be shattered thanks to overreaching on cost cutting and
expediating production.
That would pave the way for other manufacturers to capitalise on
Teslas potential flaws and claw back market share in the EV
mass-market race.
But with Teslas stock price capitulating almost
75%...