China’s Rare Earth Squeeze Is Making MP Materials More Important
Washington and corporate buyers are backing domestic magnet capacity as supply-chain pressure refuses to disappear
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Editor’s note: “China’s Rare Earth Squeeze Is Making MP Materials More Important” was previously published in August 2026 with the title, “The Reason China Targeted MP Materials Might Shock You.” It has since been updated to include the most relevant information available.
In October 1973, America learned an unforgettable lesson about what happens when a strategic rival controls the one input everything runs on…
Arab oil producers announced an embargo on the United States – and almost overnight, the world’s most powerful economy was brought to its knees. Oil prices roughly quadrupled. Gas lines stretched for blocks. Washington imposed a national 55-mph speed limit to ration fuel. And the shock helped usher in a decade of stagflation that scarred an entire generation of investors.
The embargo itself lasted barely five months. The lesson lasted 50 years: a critical dependency, concentrated in the hands of a rival, is a weapon waiting to be fired.
I bring this up because history is rhyming right now.
Except this time, the chokepoint is a handful of obscure elements at the bottom of the periodic table. And the first shots of the new embargo have already been fired.
This past June, China’s Ministry of Commerce formally added several U.S. companies to its export-control and government-procurement blacklists – direct retaliation for America’s push to build a rare earth supply chain outside Beijing’s borders. It wasn’t the first warning, either. During the ‘Liberation Day’ tariff standoff, China restricted rare earth exports and sent automakers and defense contractors scrambling. Tesla (TSLA) faced multi-week production delays over Chinese export licenses.
And the pressure has not gone away. Chinese customs data show rare earth magnet shipments to the U.S. fell to 512 metric tons in August, down 20% from July and 13% from a year earlier.
It serves as a reminder that Beijing can squeeze the supply chain one license, one shipment, and one customer at a time.
Oil made the 20th-century economy move. Rare earth magnets make the 21st-century economy move.
Let me show you why – and how investors can get on the right side of the divide.
Why Physical AI Depends on Rare Earth Magnets
The AI boom is no longer just about data centers and chatbots. This technology is going physical. And physical AI runs on motors.
Humanoid robots like Tesla’s Optimus are powered by a network of small electric motors in their shoulders, elbows, wrists, fingers, hips, knees, and ankles – reportedly dozens of precision motors per machine.
The key ingredient inside nearly every one is a neodymium-iron-boron (NdFeB) magnet, which delivers exceptional strength in a compact, battery-friendly package. Each humanoid could contain 2 to 4 kilograms of rare earth magnets, or sometimes more than an entire EV.
But robots are just the beginning. Consider how much of the modern buildout funnels through this single input:
- Tesla’s vehicles need those same magnets in the traction motors that turn electricity into forward motion.
- Orbital data centers need them in the reaction wheels that point satellites without burning fuel.
- Advanced semiconductor tools need them in the wafer-handling robotics that move silicon through fabrication.
- And virtually every guided munition, drone, and defense platform in the U.S. arsenal needs them, too.
Robots. Cars. Satellites. Chips. We’re talking about different revolutions with the same input.
The analysts running the numbers see what we see: from Bloomberg to McKinsey to Goldman Sachs, forecasters expect global rare earth magnet demand to roughly triple by 2040, led overwhelmingly by robotics and EVs.
So, for physical AI, more robots means more motors, more motors means more magnets, and more magnets means massive new demand for rare earth elements like neodymium, praseodymium, dysprosium, and terbium.
This supply chain starts in the dirt. And that’s exactly where the problem begins.
China Still Dominates the Rare Earth Magnet Supply Chain
When we first covered this story last summer, China controlled over 85% of the world’s rare earth refining and magnet production. Today, the picture is even starker. China produces the overwhelming majority of the world’s heavy rare earth elements – and roughly 90% of the finished magnets made from them.
Read that again.
The single input underpinning robotics, EVs, satellites, chip fabs, and modern defense systems is controlled – almost in its entirety – by America’s chief strategic rival. A rival that has now demonstrated, repeatedly, that it’s willing to weaponize that position.
In 1973, at least the oil weapon was pointed at us by a coalition of nations with mixed motives and leaky discipline. This time, the chokehold belongs to one government.
Washington has finally gotten the message. The U.S. is investing billions in domestic mining, refining, and magnet-making, backed by Defense Production Act funding, DOE grants, and tariff protection.
And defense acquisition rules now require contractors to phase out Chinese-origin rare earth magnets by January 2027 – a hard regulatory clock forcing a large pool of manufacturers to find non-Chinese supply on a fixed timeline.
Which raises the trillion-dollar question: find it where?
MP Materials Is Building a U.S. Mine-to-Magnet Supply Chain
Right now, MP Materials (MP) is America’s clearest operating mine-to-magnet platform.
MP owns Mountain Pass in California – the largest rare earth mining site in the Western Hemisphere, accounting for more than 10% of global supply. And just look at what has happened since we first profiled the company.
The Pentagon’s $400 million investment turned out to be far more than a cash infusion. The U.S. government took a 15% equity stake and signed a 10-year offtake agreement for magnet materials at a guaranteed price floor of $110 per kilogram.
Even if global rare earth prices crash – the kind of move China could try to engineer to undercut Western producers – MP has a decade of government-backed economics on a meaningful portion of its output. That kind of downside protection is nearly unheard of for a commodity-adjacent business.
Washington and Corporate America Are Locking In Supply
Since then, the validation has kept stacking up.
Apple (AAPL) signed a $500 million agreement to buy American-made rare earth magnets from MP, with a dedicated recycling program feeding its Fort Worth, Texas facility.
General Motors (GM) has a long-standing supply agreement for use in EV traction motors. MP also formed a joint venture with the U.S. government and Saudi Arabia’s state mining company to develop a rare earth refinery in the Kingdom – a second leg of supply outside both China and its domestic operations.
Its “10X” expansion plan targets nearly 10,000 metric tons of annual magnet production by 2028, roughly a tenfold increase from a couple of years ago. And it’s commissioning heavy rare earth separation at Mountain Pass – the capability to isolate elements like dysprosium and terbium, essential for magnets that hold their strength inside a hot robot joint or satellite actuator.
The customer base is widening, too. MP recently signed a long-term, nine-figure agreement to supply gadolinium to a U.S. aerospace and defense manufacturer. It also launched Project Swarm, an effort to coordinate magnet demand across the American and allied drone industries.
The same company supplying EV magnets is now positioning itself deeper inside aerospace, defense, and autonomous systems.
Now the buildout is showing up in the numbers.
Second-quarter revenue jumped 89% year over year to $108.5 million. NdPr production rose 41%, while sales volume more than doubled, and adjusted EBITDA improved to $28.5 million from a loss a year earlier. The Pentagon-backed price-protection agreement contributed another $17.6 million.
Meanwhile, MP delivered magnets to General Motors for in-vehicle qualification testing and remains on track to begin commercial shipments in the fourth quarter.
Beijing’s pressure has not stopped the buildout.
The harder China squeezes, the more urgent MP’s expansion becomes.
Why Rare Earth Supply Matters to the Physical AI Buildout
Humanoid robots. Electric vehicles. Satellites and orbital data centers. Advanced chip fabs.
Those are the four pillars of one man’s empire.
Every one of Elon Musk’s biggest bets – Optimus, Tesla’s vehicle fleet, SpaceX’s (SPCX) orbiting constellations, and his push into chipmaking – funnels through the exact same magnet supply chain we’ve spent this whole issue dissecting. History’s most ambitious industrial plan has a critical vulnerability, and it’s sitting at the bottom of the periodic table.
Now, one honest caveat, because we deal in facts here, not hype: no supply agreement between MP and Tesla or SpaceX has been announced. The connection is structural – shared inputs, shared strategic goals – not a signed contract. But a manufacturer as famously obsessed with controlling his own inputs as Musk, ramping Optimus toward volume production, drawing on the same domestic magnet source that Apple and GM already depend on? We wouldn’t bet against it.
Either way, the takeaway is the same: whoever supplies the magnets supplies the empire.
The Bottom Line: Rare Earth Stocks Are Becoming a Strategic Supply-Chain Trade
The 1973 embargo caught America flat-footed. But the investors who understood the chokepoint before the weapon fired were able to ride the energy supercycle that followed to generational wealth.
Today’s chokepoint is rare earth magnets.
The weapon has already been test-fired and the regulatory clock is ticking toward January 2027.
The biggest industrial buildout of our lifetimes – Musk’s included – is competing for the same limited supply.
Rare earths are already showing us what happens when enormous demand collides with a supply chain the United States can no longer afford to ignore.
They also illustrate the framework I use when looking for the biggest opportunities: identify the project, trace the physical bottlenecks underneath it, and find the investments positioned to relieve them before the money starts flooding in.
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