Explainer: What are rare earth elements, how are they responsible for EV price hike

The usage of electric vehicles has surged in the last couple of years and that trend may continue. However, a new trend that we recently observed is the price hike on EVs. Several electric bike manufacturers increased the price of their EVs a couple of months back. Additionally, as per a report, electric car prices saw a year-over-year increase of 54.3 percent, despite the prediction that EV prices will fall.

One of the reasons for the price hike on electric bikes was the end of the FAME II (Faster Adoption and Manufacturing of Electric Vehicles Phase II) subsidy by the government, which allowed users to purchase two-wheeler EVs at a cheaper price. But other reasons for the price increase of both the two-wheeler EVs and four-wheeler EVs are the most important, and reasons that you should know about if you are set to buy your first EV.

Other reasons for the increase in EV prices are higher battery costs, import tariffs, and the most important one – sourcing of Raw materials.

While the first two reasons are self-explanatory, the latter is the one that we are going to critique here. Raw materials including rare earth elements are obviously scarce and procuring them is costly. Some of the rare earth elements are used in the manufacturing of EVs and they directly or indirectly affect the price of EVs.

What are Rare earth elements and how do they affect EV prices?

Rare earth elements or REEs are 17 chemical elements from the periodic table. Out of them, three are commonly used in the manufacturing of EVs. These elements include Neodymium (Nd), Dysprosium (Dy), and Praseodymium (Pr).

The Neodymium and Dysprosium help make magnets in electric motors stronger and lightweight. Praseodymium is often used alongside Neodymium. Now, as the name suggests ‘Rare earth element’, these are rare and it takes a lot of effort to convert them into a form suitable to use in EV manufacturing.

As of now, China is the only major producer of the aforesaid elements and so it has the authority to control its supply. Although, the US has made some recent investments in the mining of such rare elements, it’s nowhere close to China.

All of these factors including the procurement cost rare earth elements, availability, and geopolitical implications, affect the EV prices.