The paradox of clean tech is that the critical materials needed to produce cleaner electricity – such as cobalt, gallium, lithium, germanium, and rare-earth elements – are far more scarce than petroleum, suggesting that global shortages and strife over vital resources is inevitable.

This risk is growing amidst historic levels of turmoil and tension in Asia that threatens stability and supply chains for critical materials – from rare earths to semiconductors. This risk requires a hedge and smart insurance policy. Rare earth investments are a good place to start. More on those in a bit.

Giant turbines and electric vehicles (EVs) require zinc, cobalt, lithium, and rare earths for their motors and batteries. Even now, with wind and solar power accounting for only about 7% of global electricity generation and EVs making up about 2% of the cars on the road, shortages are emerging and prices are rising. If the world moves toward a green-energy future, the demand for them will skyrocket and global output will fall far short of anticipated needs.

According to a recent study by the International Energy Agency (IEA) titled, “The Role of Critical Minerals in Clean Energy Transitions,” the demand for lithium in two decades could be 50 times greater than today and for cobalt 30 times greater if the world moves as expected to shift from oil-driven vehicles to EVs.

In addition, most critical and strategic materials production is highly concentrated in just a few countries, leading to the sort of geopolitical struggle over oil we saw over the last century. According to the IEA, just one country, the Democratic Republic of the Congo (DRC), currently supplies more than 80% of the world’s cobalt, and China supplies 90% of rare earth oxides. Argentina and Chile, jointly account for nearly 80% of the world’s lithium supply, while four countries, Argentina, Chile, the DRC, and Peru, supply most of our copper.

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And here is the killer punch: China has been on a spending spree in the last decade acquiring mines all over the world plus keeping more of all these critical materials at home to fuel its drive for dominance of the global clean tech ecosystem.

While American government, politics, and media are largely reactive institutions, China looks and plans ahead. This quote by Deng Xiaoping captures this reality all too well:

“Unlike the Americans, our efficiency is higher; we carry things out as soon as we have made up our mind, it is our strength and we must retain this advantage.”     

From Oil to Rare Earths: The Geopolitical Implications of the Electric Car Revolution

For the United States following World War II, ensuring access to Middle Eastern oil became a strategic priority, especially after the “oil shocks” of 1973 and 1979. Here is the key question: Are we ready for an explosion in clean energy and electric-car ownership? EV market share is already growing rapidly and projected to reach 15% of worldwide sales by 2025.

According to the IEA, a typical electric car requires six times the mineral inputs of a conventional gas-powered vehicle, not to mention 3,000 microchips. Rare-earth elements are essential for the high performance permanent magnets installed in most EV motors.

The most powerful nation and military on the planet, the United States, can supply itself with zero rare-earth oxides, as well as other critical minerals like cobalt and zinc needed for advanced green technologies. The transition to a renewable-energy future will not be easy or conflict-free.

To begin with, launching new mining ventures can be extraordinarily expensive and gaining regulatory approval for the average global mine takes 12 years. Rising capital costs and environmental standards as well as declining ore quality are also concerns cited in the aforementioned IEA report.

3 Soaring Rare Earth Investments

My Cabot Explorer investment advisory has, during the last year, recommended three ways to play the rising demand for rare earths.

The first rare earth investment recommendation I made was the Australian company Lynas Rare Earths Limited (LYSCF), which in the past year has nearly tripled from 1.65 per share to 4.69. The second was MP Materials (MP), which is America’s only rare-earth producer though it currently sends its rare-earth concentrate to China for processing. MP has EXACTLY tripled in the past year, zooming from 11 to 33 per share. Finally, there was the Van Eck Rare Earth/Strategic Metals (REMX) exchange-traded fund (ETF), which has surged from 36 to 111.

Carl Delfeld
Carl Delfeld

Cabot Explorer chief analyst.