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Rare Earth Metals and Hybrid Cars

As the world economy shifts to cleaner, more sustainable transportation technologies, the role of hybrid vehicles is taking on a greater importance for governments and consumers alike. While the basic idea of using two or more vehicle propulsion systems working in tandem to produce more energy-efficient engines is nothing new, the push is on to improve the hybrid engine’s most important and technically challenging component — the battery.

Today’s hybrid engine technology has several basic variations, but all forms consist of a typical internal combustion engine supported and complemented by a battery and an electric motor. The battery provides the electric motor with energy, and is in turn charged by the vehicle’s combustion engine when it is in use. The electric motor is designed to power the vehicle until the stored energy is drained, or until increased power requirements call for the internal combustion engine to kick in. This innovative engineering allows the modern hybrid vehicle to conserve and generate energy that would otherwise be lost with a typical gas-powered vehicle.

It is not hard to appreciate the benefits of hybrid engine technology in today’s energy-obsessed society. As theWestern world pushes for cleaner, more economical and secure energy sources, hybrid vehicles offer clear advantages over other recently developed vehicle technologies. They produce vastly fewer emissions and are therefore friendlier to the environment, are affordable to the average car buyer, consume less gas making them smart investments for millions of commuters around the world, and they have the power to dramatically reduce the West’s dependence on foreign oil supplies.

While the advantages of hybrid vehicles are obvious, several critical barriers remain before their ultimate mass adoption by consumers. The purchase price for a hybrid vehicle, while acceptable, is still much higher than similar models powered by traditional gas engines. While this is clearly a challenge for manufacturers, the eventual gains for the consumer in terms of lower fuel input costs mean that their investment should pay off within a few years of city driving.

While the initial purchase price of a new hybrid vehicle may discourage some early adopters, arguably the greatest obstacle in today’s hybrid vehicle market lies with the battery, which requires rare earth elements such as lanthanum, neodymium, terbium and dysprosium to operate. In contrast to crude oil resources, which in relative terms are more evenly spread out across the globe, China currently controls 95 percent of the world’s extractable rare earth element supplies for the hybrid battery market.

A new study forecasts a big global spike in hybrid purchases by fleets over the next five to
six years, with medium- and heavy-duty trucks along with buses comprising the biggest
growth categories. Cumulative sales of hybrid vehicles in the fleet sector should total nearly
four million worldwide between 2009 and 2015, with hybrid fleet sales increasing from
300,000 units in 2009 to more than 830,000 units by 2015.

Pike Research – As quoted in a Nov 18, 2009 article by Sean Kilcarr, senior editor Fleet Owner Magazine 1

While some of the world’s major car makers are ramping up their efforts towards mass production in anticipation of a rapidly expanding market (with cars such as the Ford Focus; GM Volt, Tahoe and Yukon; and the Honda Insight as examples) Toyota’s Prius currently dominates the US market with a 70 percent share. While this may seem like cause for celebration, the Japanese automaker’s dominance of the consumer hybrid vehicle market is somewhat threatened by its vulnerability to Chinese rare earth export policies.

While experts agree that hybrid cars are the way of the future, less than three percent of new car sales in the US for August 2010 were hybrid or electric.2 Investment firm AllianceBernstein believes that hybrids will ultimately surpass traditional cars and take up a majority share of the US vehicle market sometime in the next 10 to 20 years.3 While some serious technical issues remain in terms of battery efficiency and manufacturing costs, experts agree that the tipping point for wide-scale consumer adoption is going to arrive sooner than later. This widely held belief has interesting implications for the rare earth materials market.

The market-leading Prius uses large amounts of rare earth materials in its electric motors and batteries. Each engine uses 33lbs (15kg) of lanthanum and 2lbs (1 kg) of neodymium. Two other rare earth elements, terbium and dysprosium, are also added to the alloy to preserve neodymium’s magnetic properties at high temperatures.

Adding lanthanum to the motor of a hybrid car increases the power and efficiency of the engine. Nickel-lanthanum hydride batteries are able to pack more power into a smaller space, and are about twice as efficient as the standard lead-acid car battery.

While most people have never heard of lanthanum, the rare metal plays a significant role in the Prius’s market-leading energy economy. Toyota plans to sell a million units of the Prius worldwide per year in the very near future and the issue of supply shortages is at the forefront of their business planning. While there is more lanthanum in the ground than silver or lead, extraction is prohibitively expensive and currently only China is able to achieve economies of scale in the lanthanum market. As a response, Toyota is looking at securing alternate supplies by buying into existing mines in Vietnam and exploring similar options in Canada.4

“Toyota is the biggest car company in the world and the Prius is eight percent
of their manufacturing…and there’s not enough lanthanum on the market today.”

Jack Lifton, Founding Principal – Technology Metals Research, LLC 5

Given the backdrop of increasing demand and dwindling supply, the question looms large as to how a potential slowing or interruption in the supply chain of lanthanum and neodymium will affect the move to hybrid automobiles. In a recent interview, Jack Lifton of Technology Metals Research predicted that if North American production of rare earth metals does not develop as hoped, there will be a gap in hybrid and electric car production in the future.  Further complicating this issue is that China continues to divert much of its neodymium production toward domestic wind turbine production.6

In the short term, Toyota’s vast resources may be able to weather any rare earth metal shortages, but other automakers may be forced to hold off on entering the market. Lifton believes that Toyota is ahead of the curve in terms of securing supplies, while Honda and Ford are also taking similar steps to develop their own reliable sources. For other car makers, however, difficult times lay ahead. “If you didn’t develop raw materials sourcing already, you’re done,” says Lifton.7

The Mountain Pass Mine in California has the potential to narrow the gap with China, but that project is still years from fruition. Further supply pressures will surely follow as the technology becomes standard in the mass transportation sector. Government investments in high-speed trains, buses, and even airplanes using related technologies will further strain the supply market.

Another complicating factor is the increased use of lithium-ion batteries as an alternative to nickel-metal (lanthanum) hydride batteries. Lithium-ion batteries are smaller, lighter, deliver improved charge efficiency, and have the highest energy density of any rechargeable batteries. They also deliver a voltage more than three times that of nickel-metal hydride battery cells, while simultaneously storing large quantities of electricity. However, lithium-ion batteries face their own supply challenges, so this may not be the short-term fix many are hoping for.

Regardless of the industry or market segment, any business that relies solely on one raw-materials supplier opens itself up to potential supply disruptions and distorted relationships. It is incumbent on successful businesses faced with these pressures to explore other viable options. With the global car market on the cusp of monumental change, it will be very interesting over the next few years to watch how the dynamics of the rare earth materials market will affect the evolution of human transportation.