Shares of MP Materials (NYSE:MP) opened lower by more than 10% following Tesla’s (NASDAQ:TSLA) investor day event. The event, coined “Master Plan Part 3,” disclosed that the electric vehicle (EV) company will utilize a permanent magnet motor that will cease to use rare earth metals in its next drive unit. The next drive unit will also “feature a 50% reduction in factory footprint” and will be used in Tesla’s upcoming next-generation vehicle.
“It would be a big blow to the rare earth industry if there is a complete substitute to rare earth based on current technology,” said Shanghai Metals Market analyst Yang Jiawen. “Without Tesla disclosing any information on possible substitutes, I am cautious on the news.”
Tesla official Colin Campbell explained that Tesla’s new transistor package will use 75% less silicon carbide than previous builds. Reduced usage of this rare earth metal provides benefits to the environment and allows for less dangerous mining. In addition, prices for these metals have risen in recent years along with the adoption of EVs.
MP Stock Falls on Tesla’s Reduced Usage of Rare Metals
This news could be especially detrimental to MP if other EV companies choose to follow suit. Today, it seems too early to predict this, although Tesla has cemented itself as an innovator in the industry.
MP isn’t the only stock falling hard on the news. China is known as a leader in refining rare earth metals, which resulted in several Chinese mining companies, such as Rising Nonferrous Metals Share Co, to decline in price. Other Chinese Tesla suppliers, like Ningbo Xusheng Group Co, saw their share prices slashed as well.
Geopolitical tensions between the U.S. and China may have also influenced Tesla to cut back its usage. Some investors may see this news as Tesla strategically positioning its supply chain in order to safeguard any possibility of geopolitical tension.
Today, MP carries an average price target of $44.14 among 11 firms with coverage of the stock. Last month, three separate firms raised their price targets to $34, $34 and $43, while Deutsche Bank lowered its price target to $33.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.