Supply Chain Diversification
TSMC, the world's largest contract chip manufacturer, is seeking alternative machinery without rare-earth components to reduce its dependence on China-dominated materials and avoid disruptions to factory operations caused by the country's export controls. According to a Reuters report citing people familiar with the matter, the Taiwanese company has begun approaching its equipment suppliers to explore whether they can provide factory automation equipment equipped with motors that don't require rare-earth materials.
TSMC supplies powerful chips that facilitate the AI boom and manufactures semiconductors for major tech and automotive companies. The company operates enormous, highly automated semiconductor fabrication plants. These factories use industrial machinery that relies on electric motors with powerful permanent magnets made from rare-earth elements such as neodymium, dysprosium, and terbium.
Global Rare-Earth Monopoly
China accounts for roughly 70% of global rare earth mining, according to the U.S. Geological Survey. The International Energy Agency states that China also controls around 90% of refining and approximately 95% of the finished permanent magnets found in TSMC’s machines, giving Beijing a dominant position over critical technology supply chains. Export controls require case-by-case approval and licenses, choking shipments to manufacturers across the U.S., Europe, and Asia.
Controls have faced various expansions and suspensions, creating regulatory uncertainty for manufacturers. This situation has pushed hardware makers to reassess their dependency on overseas materials subject to sudden geopolitical restrictions.
Alternative Motor Technologies
TSMC’s moves aim to reduce the risk that these controls will hinder production at its factories. Even with all other raw materials required to manufacture chips, shortages of specialized motor components could complicate the maintenance, repair, or expansion of production equipment. Several technological approaches allow motors to avoid rare earth magnets, such as conventional induction motors, switched-reluctance motors, or permanent-magnet motors using ferrite magnets. However, these alternatives typically involve different trade-offs in efficiency, size, power density, and control requirements.
Building Independent Supply Chains
Meanwhile, the rest of the world is undertaking the task of building a rare-earth supply chain outside China. Taiwan is reportedly pursuing domestic rare-earth production capabilities in collaboration with the United States, with both countries confirming their intent to reduce reliance on Chinese rare-earth and critical-mineral supply chains.
Taiwan's government is supporting research institutions in establishing pilot production lines to supply domestic rare-earth demand. Meanwhile, international partners are working to develop alternative sources of supply, expand processing capacity, and build more resilient supply chains to offset risks from export dependencies.
