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By David Silver

Toyota (NYSE:TM) is trying to break its reliance on China, no not for its sales, but more for its rare earth metals. According to a WSJ article, about a kilogram (or 2.2 pounds) of a rare earth metal neodymium is used in every Toyota Prius. Almost all of the neodymium produced and refined today comes out of China. The auto industry uses approximately 40% of all the neodymium produced, and prices have skyrocketed. The metal is used in the magnets that help to power the engine.

Today, most engine motors used in electric and hybrid cars use a different type of motor that relies on permanent magnets. These magnets always have a magnetic field; think of those magnets that are holding your kids report cards up on your fridge.

Toyota is attempting to develop an induction motor (similar to your blender), that uses electromagnets, which require power to be flowing through them to have an attraction. It will be interesting to see if these new models will have less power because of the different type of magnets.

General Motors (NYSE:GM), which just released the Chevy Volt last month, is already trying to develop an induction motor, while Continental AG (OTCPK:CTTAY), one of the largest auto parts suppliers in the world said it already has an induction motor that will be used in an electric vehicle next year in Europe.

Prices for rare earth metals have been extremely volatile, but if the world's automakers can find an alternative to using neodymium without sacrificing any power or performance, it will take a great deal of the demand out of the rare earth metal. Prices would then fall. I assume that other industries that use rare earth metals (cell phones, computers, etc.) are also looking for alternatives to lessen their dependence on Chinese rare earth metals.

Disclosure: No position

Source: Toyota Tries to Lessen Dependence on China