Risk Management of the Supply of Rare Earth Elements: A Case Study of an Automotive Manufacturer

Abstract

Abstract Increased focus on clean technology has increased the demand of the rare earth elements dysprosium and neodymium, which are materials included in wind turbines and hydro and electric cars. Today the supply of dysprosium and neodymium cannot keep up with the increased demand due to limited production sites, lack of effective substitutes and complex production and refinery processes. Furthermore, China has great power in the market of these rare earth elements due to big reserves, low regulations, low cost labour and the country owns the majority of the production sites. These factors makes China control the market and can increase the prices by implementing regulations such as export quotas or duties. Companies who are including dysprosium and neodymium in their product are exposed to price risks and sudden price increases that could impact the company considerably. There is no research covering how companies should handle these risks. The purpose of this thesis was, therefore, to investigate the risk management approach connected to commodity prices of rare earth elements for an automotive manufacturer. This was investigated by performing a qualitative case study of Volvo Car Group, with internal interviews at Volvo and an external interview with a first tier supplier of Volvo. Findings in this research show that Volvo has a high exposure to the price risks related to dysprosium and neodymium and possible mitigation strategies to reduce risk exposure, for the company, are: sharing price risks with suppliers, secure supply, reduce demand and recovery. This research could serve as a foundation for future research of the price risk management practise regarding rare earth elements in other industries or focus on the sustainability risks associated with rare earth elements.