The electric vehicle space was one of the hottest industries in 2020. Even with the impact of the coronavirus pandemic, many EV giants posted surging sales in 2020; Tesla (Nasdaq: TSLA), for one, delivered a record 499,550 vehicles, up from 367,500 in the preceding year. And the strong EV demand has carried over to the rare earth metals market.
EV motors use kilograms of magnetic materials, including neodymium and dysprosium. In 2019, more than 80% of worldwide EV sales included permanent magnet-based motors, according to independent market research firm IDTechEX.
Other commonly used rare earth elements in EVs include cerium, lanthanum, and praseodymium. Typically, the use of neodymium and praseodymium is needed in the manufacturing of batteries.
In 2018, the worldwide rare earth elements market size was worth just $2.8 billion, according to a report from Grand View Research. That leaves plenty of room to grow, with the market projected to increase to $20.6 billion in 2025, according to Brand Essence Research.
"Growing demand for magnets in automobiles and energy generation will majorly contribute to the growth of global rare earth metals market over the forecast period,” the market research & consulting firm said.
Even though drawing a profit remains an issue for some, many stocks in the rare earth metal space experienced a rally in 2020. Last year, shareholders in the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX), watched their returns jump 61%.
With rare earth metals expected to play a pivotal role in helping the fast-growing EV space, below are three stocks you’ll want to consider adding to your long-term investment portfolio:
MP Materials (NYSE: MP)
One stock you’ll want to consider buying is the hot stock of MP Materials. Interestingly, MP, which made its trading debut in November through a SPAC (Special Purpose Acquisition Company) marks the first time a U.S. rare earth firm went public since Molycorp did a decade ago, according to a Reuters report.
Unfortunately for Molycorp, its trading run was not one to remember; it filed for bankruptcy in 2015 due to plummeting commodity prices. Then in 2017, MP swooped in to buy California’s Mountain Pass mine among other assets of Molycorp.
MP hopes to avoid the fate of Molycorp—and so far it’s off to a pretty good start. Since its opening price on its first day of trading in November, shares of MP have risen 72% to date.
The gains in part can be attributed to achieving impressive financial results in the third quarter. Not only did its quarterly revenues surge 52% year-over-year but its net income increased more than fivefold to $14.63 million compared with the same period in 2019.
In addition, management also forecasted in its third-quarter earnings that it expects to keep “driving profitable growth” as it produces its “rare earth concentrate.”
Even though there’s been a big surge on this stock, you’ll want to keep an eye on it and bank on this company continuing its growth in an early developing industry.
Two Microcap Stocks to Watch
If you’re looking for penny stock trading, there are plenty including Rare Element Resources (OTC: REEMF).
The Colorado-based company, which develops “strategic materials” for technology industries experienced a volatile 2020. At the moment, Rare Element has recovered from its December low of 50 cents per share. Over the past eight trading days, the company has closed above $1 per share.
In its latest quarter, Rare Element’s net loss more than doubled to $860,000 from $364,000 in the same period in the preceding year. According to Macrotrends, the company has not shown a profit since 2007.
That said, there is plenty of room for this company to grow, and it would be a decent bet for your long-term portfolio.
Another microcap stock that you’ll want to take a look at in the rare earth elements space is Canada’s Medallion Resources (OTC: MLLOF).
Like Rare Element, 2020 was a volatile year for Medallion but it ended in the green as well.
One important development to monitor: last month, the company announced its proposed U.S extraction plant is expected to produce around 3,500 tonnes per year of rare-earth products. Of that amount, roughly 800 tonnes per year would go towards neodymium and praseodymium magnet metals.
According to Medallion, those magnet metals play a pivotal role in the input of “powerful and lightweight traction motors” equipped in EVs of Nio (NYSE: NIO) and Tesla.
By the first quarter, Medallion expects to post its “techno-economic assessment results” for its proposed plant.
Currently, the stock trades at 26 cents per share, and could see some big gains in 2021.
With EV sales continuing to surge, the future for rare earth metals looks bright.
Reducing Dependence on China
Currently, China is the dominant supplier of rare earth elements. From 2014-2017, China supplied 80% of the rare earths imported by the U.S., according to a 2019 Reuters report. In 2017, China accounted for 81% of rare earth production globally, the report said, citing data from the U.S. Geological Survey.
Earlier this year, to reduce U.S. dependence on China’s rare earth minerals, President Donald Trump signed an executive order declaring a national emergency. The order aimed to bolster domestic production of rare earth minerals.
More than $800 million in pandemic relief and spending signed into law by President Trump will be used to fund rare earths and strategic minerals research.
As the U.S. looks to move away from dependence on China, MP Materials CEO James Litinsky shared some comments with Yahoo Finance’s Zack Guzman after making its trading debut through a SPAC.
“When you think, when you're a viewer at home, when they buy their Tesla or their iPhone, inside that device or car is a magnet that was made in China. And we simply want to move downstream,” said Guzman, whose company produces 15% of the global supply of rare earths.
He continued, “That supply chain today is all in China. And we want to make sure that the Teslas and Apples of the world have an option to buy from an American company so that they can have some diversity of supply chain. And that's the mission that we're on. Our mission is to restore the full rare supply chain to the United States of America."
With the global size of the rare earth metals market still in its developing stages, there is plenty of room for the industry to grow. Plus, investors should be intrigued by the measures that the U.S. has been taking to increase domestic production in the last few months.
The opinions expressed in this article do not reflect the position of CapitalWatch or its journalists. CapitalWatch has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice.