Germany and Canada will collaborate more closely in the field of rare earth metals, such as cobalt, lithium, tungsten, and nickel. These raw materials are essential components for EV batteries, electric motors, and other applications.
Both countries will finance projects in Canada for the extraction of these materials in the future. This was agreed by German Chancellor Friedrich Merz and Canadian Prime Minister Mark Carney during talks in Berlin.
Germany is heavily dependent on imports of these types of earth metals, and the agreement will enable German car manufacturers to accelerate the rollout of EVs and avoid potential bottlenecks.
Dominant China
Canada has significant reserves of rare earth metals that have yet to be developed. Currently, this market is dominated by China and Russia. However, new geopolitical developments and global trade unrest, combined with increasing demand, are prompting governments to strengthen the supply chains for these raw materials.
Earlier this year, for example, China imposed export restrictions on rare earth metals. China is the world’s largest producer of these metals. Within Europe, where these metals are crucial for the energy transition, there is also a growing focus on reducing dependence on imports, especially from unreliable trading partners.
Struggling auto industry
It is not only in the context of vulnerable supply chains that Germany was keen to reach an agreement with Canada. The country is Canada’s most important trading partner in the European Union, and Germany is also Europe’s largest car manufacturer and one of the world’s largest car exporters.
It is precisely to keep the currently sputtering engine of the German economy running smoothly, and because the automotive sector plays a crucial role in Germany’s transition to a climate-neutral energy system and green strategy, that the market for rare materials is so important to the country.
Germany is currently dependent on Chinese lithium and is relying on its own mining projects, as well as those in Serbia.
Pros and cons
According to Carney, there are many opportunities for extracting rare earth metals in Canada in the short term. However, he also pointed out that investments are needed in infrastructure to export these raw materials, including port infrastructure.
One drawback of the protocol agreement between the two countries regarding rare earth metals is that mining and refining in Canada is likely to be more expensive than sourcing from lower-cost countries. Automakers such as Volkswagen, Mercedes-Benz, and BMW may face higher input prices unless subsidies, long-term contracts, or technological efficiency gains balance the costs.
Another sensitive issue is that the development of new mines and processing facilities can take five to ten years due to the need for permits and environmental impact assessments, particularly regarding the rights of indigenous peoples.
At the same time, Germany’s decision to act independently could also create tensions within the EU. Some countries, especially the smaller ones, prefer collective European procurement strategies. Now there is a risk that car manufacturers in France, Italy, or Eastern Europe may worry that they will be sidelined.
For example, Chinese export restrictions on rare earth metals threatened to leave the European automotive industry without essential magnets this summer. Manufacturers warned that production lines could come to a standstill within weeks. According to a German CEO, there was “panic throughout the industry” and companies were willing to pay any price to secure raw materials, which immediately puts you more in the Far West than in a collective Europe.
