U2 used to sing: “I can’t live with or without you”. US and European automakers are asking themselves a similar question: whether they can live with or without access to Chinese rare earths, as they are caught in between the need to transition to EV motors and the need to overcome the geopolitical disruptions that limit access to these Chinese rare earths on which EV motors depend. In this first issue of At a Crossroads, global law firm Squire Patton Boggs explores the legal strategic options facing OEMs in their accelerated search for alternatives to Chinese rare earths for EV motors- ranging from negotiating resource development agreements to structuring long-term supply contracts and managing cross-border regulatory compliance, including in less familiar jurisdictions with alternative rare earth supplies, or switching to components that do not require rare earths.

Between a rock and a hard place

A recent New York Times article reports that “stunned by frequent shortages of essential materials from China, automakers in the United States and Europe are quietly trying to reduce or eliminate the need for materials that have become entangled in superpower rivalries”.

On the one hand, the COP 30 summit reinforced the urgency of accelerating the low-carbon transition to EV motors; on the other hand, the rare-earth elements (neodymium, dysprosium and terbium) that are essential for this transition are heavily concentrated in China. Accessing them is becoming more and more difficult due to US-China trade tariffs tensions.

Case studies

OEMs are pursuing two (non-mutually exclusive) paths: developing rare-earth-free motor technologies and/or securing alternative supply sources. We have assisted OEM clients with both: we assisted one client with their effort to develop effort to develop a motor which generates a magnetic field using electric current rather than permanent magnets, without the need for rare earths; while we assisted another client in their effort to localize their supply chain through a long-term partnership with an energy company. Both strategies would have the effect of reducing reliance on Chinese exports of rare-earth metals. However, neither strategy is without complexities, and both face similar challenges in scaling for mass production and meeting durability standards for automotive use. These alternatives often involve trade-offs and most are years away from large-scale adoption.

Strategic options

At Squire Patton Boggs, we leverage our interdisciplinary approach, combining deep experience in the Automotive & Transportation Industry with our Energy & Natural Resources Industry expertise. This unique perspective enables us to assist clients in:

1. Securing new strategic alliances and/or supply arrangements.
2. Negotiating complex commercial agreements with resource developers, technology partners, and transportation suppliers.
3. Navigating trade and environmental regulations impacting global supply chains and the geopolitics of international sanctions, trade and tariffs.

As the automotive industry stands at this critical juncture, proactive legal and strategic planning will be essential to maintaining competitiveness and resilience. Our team is ready to help OEMs and suppliers chart a course through these challenges and seize emerging opportunities.

Roadmap

Here’s a practical roadmap for OEMs negotiating natural resource supply agreements – whether for rare earth metals from jurisdictions outside China or for other alternative materials used in new EV motor technologies:

Regulatory & Compliance

• Confirm compliance with local mining laws, export controls, and environmental regulations.
• Verify permits and licenses of the supplier.
• Assess sanctions and trade restrictions for cross-border transactions, including due diligence on NIMBY opposition (or “Not In My Backyard,” which refers to the resistance from local residents against proposed developments in their communities, often driven by concerns over potential negative impacts), especially in connection with greenfield mining/development projects that could delay or stop projects.
• Align with U.S., EU, or other jurisdictional requirements (e.g., Inflation Reduction Act, EU Critical Raw Materials Act, Dodd Frank Conflict Minerals Rules) on tax, incentives, and programs to benefit project economics, as well as compliance barriers and risks, especially considering the long-term nature of these types of commitments.

Resource Security & Quality

• Define specifications and quality standards for minerals.
• Include inspection and testing rights.
• Ensure traceability for ESG and supply chain transparency
• Confirm viability of any new technology or processes and confirm no intellectual property concerns

Pricing & Payment

• Agree on pricing formula (fixed, indexed, or hybrid).
• Include price adjustment mechanisms for market volatility and currency fluctuations. In today’s world we also need to consider changes in law – especially regarding sudden and unexpected tariffs, sanctions, and other market disruptions.
• Set clear payment terms and currency provisions.
• Add transparency for cost-based formulae.

Risk Allocation

• Draft robust force majeure clauses (covering geopolitical risk, export bans, natural disasters).
• Include performance guarantees (e.g., minimum and maximum quantities, delivery schedules) and remedies for non-delivery. Not just with respect to quantities and schedules, but also as to quality.
• Address insurance requirements for transport and storage. 
• Consider buffer supplies and consignment arrangements.

Sustainability & ESG

• Require compliance with environmental and social standards (health and also wages, labor standards, union concerns- especially in certain less developed sourcing countries).
• Include audit rights for sustainability reporting.
• Consider carbon footprint and recycling obligations.
• Consider take-back and recycling programs for end-of-life products.

Logistics & Delivery

• Define Incoterms and delivery schedules.
• Address transportation risk and customs clearance responsibilities.

Dispute Resolution

• Specify governing law and jurisdiction- choose neutral venues.
• Include arbitration clauses for cross-border disputes.
• Consider bilateral trade agreements and pre-structuring of investments

Confidentiality & IP

• Protect technical data and proprietary processes.
• Include non-disclosure obligations for strategic information.

Termination & Exit

• Define termination rights for breach or regulatory changes.
• Include transition provisions for continuity of supply.

Conclusion

U2 never seems to have found the answer to the question in their song- whether Bono could live with or without you. By contrast, Automakers may have no choice but to decide whether to live with or without Chinese rare earth metals.