TSMC is asking equipment suppliers whether factory automation systems can use motors that do not depend on rare-earth magnets. The discussions, reported by Reuters, are intended to reduce the risk that Chinese export controls could disrupt the maintenance or expansion of plants making the world’s most advanced chips.
The vulnerability sits far from the most visible part of semiconductor manufacturing. Rare-earth magnets do not form transistors on a wafer. They are used in motors that move components, robots and material-handling systems inside highly automated fabs. Yet the absence of one relatively inexpensive part can prevent a machine worth many millions of dollars from operating.
The bottleneck is in processing and magnet manufacturing
Rare-earth supply is not a single market. The chain includes mining, chemical separation, metal and alloy production, magnetic powder and finished magnets. The International Energy Agency estimates that China accounted for 60% of mined output of magnet rare earths in 2024, 91% of refined production and 94% of sintered permanent-magnet manufacturing.
That distinction explains why opening another mine does not quickly diversify supply. An alternative source of ore is of limited use without separation plants and factories capable of producing magnets to the required specification. The IEA says announced magnet capacity in diversified regions would cover only about one-third of expected mining capacity outside the dominant supplier by 2035.
China’s export controls on seven heavy rare earths and related products in April 2025 demonstrated the practical effect of this concentration. Export volumes dropped sharply before licensing restored part of the flow. Magnets made outside China continued to command a premium, effectively placing a market price on supply security.
A different motor requires more than a different supplier
Induction motors and switched-reluctance motors can operate without permanent rare-earth magnets, while some permanent-magnet designs can use ferrites. The alternatives involve trade-offs in power density, size, heat, energy use, precision and control systems.
Those differences matter in a semiconductor fab, where equipment must operate with high precision and every change has to be qualified for reliability and its effect on production yield. A motor redesign may require different power electronics, cooling or machine geometry. It therefore takes longer than replacing an identical component from another supplier.
TSMC is still surveying vendors. It has not confirmed large-scale adoption, identified the equipment involved or disclosed the expected cost. The timetable is therefore uncertain. The significance of the inquiry is that rare-earth exposure is moving from procurement departments into the engineering specifications of capital equipment.
A small component can delay a large investment
The economic impact is determined by the value of the asset that cannot operate, not by the price of the magnet. TSMC spent NT$443 billion on capital expenditure in the third quarter of 2026. Its two-nanometre process already generated 8% of wafer revenue during the quarter. A delayed tool can postpone revenue from an entire production line and extend customers’ wait for processors.
Manufacturers have three broad responses. Stockpiling magnets and spare assemblies is fast, but ties up working capital and offers limited protection against a prolonged restriction. Qualifying non-Chinese magnets preserves the motor design, but alternative capacity remains scarce. Redesigning the motor removes the material dependency, although it requires more engineering work and a new qualification process.
Equipment makers, motor specialists and magnet producers outside China can benefit if they meet demanding performance standards and supply at industrial scale. Resilience is becoming a product attribute: chipmakers will increasingly evaluate a machine not only by output and price, but also by the origin and substitutability of its critical components.
Resilience depends on replacement time
Having two direct suppliers does not provide much protection if both rely on the same Chinese magnet material or processing technology. Semiconductor manufacturers will need visibility beyond their immediate vendors, tracing exposure from an assembled motor back to alloys and refined oxides.
The most useful metric is the time required to qualify and install an alternative without interrupting production. Inventories can provide a buffer, new processing capacity can widen the supplier base, and equipment redesign can reduce material demand. None is an immediate solution, but together they determine whether a rare-earth restriction remains a purchasing problem or becomes a fab shutdown.
Sources
- Reuters — TSMC’s supplier inquiry.
- International Energy Agency — supply-chain concentration and diversification.
- TSMC — third-quarter capital expenditure and technology revenue mix.