TSMC seeks factory-equipment alternatives to thwart China’s rare earths grip, sources say

Taiwan’s TSMC is exploring alternatives to rare-earth components in factory equipment, three people familiar with the matter said, aiming to reduce the risk that Beijing’s export controls could disrupt operations at plants that make the world’s most advanced chips. 

The move, reported for the first time, underscores how China’s grip on rare earths has become a vulnerability for the global semiconductor industry after the country last year put certain rare-earth materials, magnets and related processing technology under export controls, requiring licences.

Rare-earth magnets are commonly used in motors that power moving parts in industrial equipment, including machinery found in highly automated factories such as those operated by TSMC. A shortage of such specialised parts could disrupt chip production for customers in smartphone, AI system, data centre and defence supply chains. 

TSMC, the world’s largest contract chipmaker, has surveyed suppliers on using rare-earth-free motors in factory-automation equipment, according to three industry executives briefed by the company on its plans. One of the people said the effort was driven by concerns about potential supply disruptions from China.

The discussions remain at an early stage and have not yet resulted in a broad rollout of rare-earth-free equipment, according to two of the people. TSMC declined to comment.

TSMC’s efforts follow statements from the United States and Taiwan that they would begin looking for ways to reduce their reliance on Chinese rare-earth and critical-mineral supply chains. In June, Raymond F. Greene, the director of the American Institute in Taiwan, Washington’s de facto embassy in Taipei, said the United States is working with Taiwan and other partners to develop alternative sources of supply, expand processing capacity and build more resilient supply chains.

Taiwan’s Economy Minister Kung Ming-hsin said in February that the government would give support to the Industrial Technology Research Institute, a domestic research organisation, to develop rare-earth technologies, with plans to establish a pilot production line within three years that could meet an estimated 50 percent of the island’s domestic demand.

US officials have shown particular interest in the institute’s work and have engaged the organisation in talks about diversifying critical-mineral supply chains, according to a person at a US-based think tank familiar with the discussions. The US State Department did not immediately respond to a request for comment.

In a statement, the Industrial Technology Research Institute said it was working with the Department of Industrial Technology at Taiwan’s Ministry of Economic Affairs to plan a rare-earth project. It did not provide further comment.