Tesla has decided to shift to a magnetic motor that uses neodymium. Source: NDTV

Tesla has decided to shift to a magnetic motor that uses neodymium for the Model 3 Long Range car, spurring demand for the rare metal. In the last few decades, the increasing threats of global warming occasioned by overreliance on fossil fuels have been pushing governments towards greener economies. Demand for electric cars that promise to drive the car industry towards a cleaner future has in particular been significant. As demand for these cars grows, demand for the metals has also gone up.

Cobalt and lithium which are important components for car batteries are two of the most used metals in electric cars and it seems that neodymium, a rare earth metal, is about to join the list. Neodymium offers a number of benefits. Some automakers are already using magnet motors that rely on neodymium because they are lighter, more efficient and last longer than the commonly used induction motors that rely on copper coils.

Neodymium is a rare metal. Source: Reuters

However, Tesla’s decision to switch to neodymium has more significance. The company has staked its future on developing a robust electric car industry and other automakers are following suit. There’s a general consensus in the auto industry that electric cars are the future and in fact, research and development on them have been huge in the recent years.

The introduction of neodymium as a key component of the electric car will definitely raise the demand for the rare metal. Although Tesla is now leading the charge towards the metal, being an industry leader, there is no doubt that other players in the electric car manufacturing industry will join in.

According to research group imarc, neodymium-iron-boron magnets’ global market is valued at $11.3 billion. The research firm also says that the demand for these magnets has risen at an average compound rate of 8.5% over the last seven years. This is the clearest indication that there is an increased demand for the metal.

Neodymium’s average price at the moment is $70/kilogram. Source: Sensors Mag

David Merriman, a senior analyst at Roskill, a leading metal consultancy company, says that global demand for neodymium last year stood at 31,700 tonnes. This was 3,300 tonnes higher than the supply available in the market. Merriman added that demand is expected to hit 38,800 tonnes in 2018 with the supply deficit also expected to rise.

At the moment, neodymium’s average price is $70 a kilogram. This represents a 40% price increase in just a year. But there is one big challenge that should be addressed. China is the world’s leading producer of neodymium. The Asian country banned neodymium exports in 2010. The ban led to skyrocketing prices eventually hitting $500 a kilogram.

Although the ban has since been lifted, there’s a small possibility that it could be placed again. In addition to this, the process of extracting neodymium is quite expensive. With these supply risks, several automakers such as the Japanese giant Toyota are looking to cut reliance on the metal. There are also other companies outside China that are producing neodymium although not at the scale of the Chinese companies.