This week's escalation of export controls between the Biden administration and China is directing attention to MP Materials, the major U.S. producer of rare earth materials used in EV motors and other advanced technologies. MP stock has been on the rise, clearing a buy point in recent weeks, largely because of its efforts to advance a domestic supply chain for rare earths.
The latest vote of confidence came on Monday, as DA Davidson lifted its MP stock price target to 25 from 23. That followed Canaccord's price hike to 26 from 23 last week, while keeping a buy rating on MP. Both firms highlighted an uncertain near-term outlook for rare earth prices, but said MP's operating efficiencies and progress are building value.
MP Materials Boosts Output, Revenue
Despite a 23% drop in the price of rare earth oxide (REO) concentrate produced at is Mountain Pass, Calif., mining complex, MP still saw revenue rise 20% from a year ago to $62.9 million in Q3. Production of REO exceeded its next-best quarter by 15%.
That output has previously all been shipped to China for processing. However, MP is now ramping up output at its Stage II processing facility that separates concentrate into rare earth oxides sold directly to customers. Stage III involves turning NdPr oxide into alloy flake and permanent magnets.
MP CEO Jim Litinsky said on the Nov. 7 Q3 call that its Fort Worth, Texas, facility is on track for commercial magnet production by the end of 2025.
Magnets Key To EV Motors
General Motors struck a deal in 2022 to be the foundational customer of the Fort Worth magnetics facility in a bid to lock down the supply of permanent magnets for its fleet of EVs, including the Hummer, Silverado and Cadillac Lyriq. Permanent magnets play an important role in optimizing motor performance and improving vehicle range.
Litinsky noted that MP now essentially sells directly to three of the five largest non-Chinese automakers in the world. He said about 30% of rare earth demand comes from EVs and hybrids. "The other 70% is our sort of standard old line correlated with Chinese manufacturing industries, power tools, HVAC, et cetera."
The success of China's stimulus in boosting the worlds No. 2 economy will be the "big wild card" for rare earths pricing, he said.
A possible Republican move to take away a subsidy of up to $7,500 for buying U.S.-produced electric vehicles could restrain the EV market's takeoff in the U.S.
Longer-term, robotics could be a major driver of demand for rare earths, Litinsky said.
Battle Over Export Controls
On Tuesday, the Chinese Commerce Ministry said it will ban exports to the U.S. of gallium, germanium and other high-tech materials with military applications. Gallium and germanium are integral to advanced chipmaking, while antimony is used in weapons and batteries.
China's move is more of a shot across the bow than a major impediment to the U.S. tech sector, since most chip manufacturing is done overseas. However, Beijing took its latest step in October to regulate rare earths in a potential precursor to export controls.
There is potential for further escalation, especially if the current administration and incoming Trump administration continue to tighten export controls to impede the progress of China's tech sector. Analysts said the Biden administration moves announced Monday were more stringent, but only moderately so.
MP Stock
MP Materials jumped 9.3% to 22.79 in Tuesday morning stock market action. Shares first cleared a 19.23 buy point from a double-bottom base on Nov. 6, then reclaimed the buy point with a 4.9% move on Nov. 22. The buy zone ran to 20.19, so MP has sailed out of reach for now.
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