Shares of rare earth metals miner MP Materials (MP -4.25%) soared after reporting strong earnings last week -- better-than-expected revenues, and profits more than twice the level Wall Street had predicted -- gaining more than 14% over the next two trading days.
But easy come, easy go.
In early trading Thursday morning, MP Materials is taking a big hit, and indeed is giving back all its post-earnings gains -- down 13.3% through 11:15 a.m. ET -- "thanks" to a revelation made by electric vehicle maker Tesla (TSLA 3.31%) last night.
In the course of a generally underwhelming investor day, in which Elon Musk failed to announce (as expected) the unveiling of a new budget-priced Model 2 electric car, the electric impresario did have something to announce of importance to rare earth investors: Tesla has invented a permanent magnet motor for electric cars that "does not use any rare earth metals," reports StreetInsider.com.
For a company like MP Materials, which has staked its future upon a growing demand for rare earth metals to power not just electric cars, but wind turbines and other 21st-century electric gizmos, this is disappointing news. The foremost maker of electric cars says it may soon not need the product that MP Materials is selling.
And the news gets worse. Elon Musk may be a man well known for announcing products that never actually come to market, but already today, reports StreetInsider, Tesla has cut the volume of rare earth metals going into its Model 3 drive units by 25%.
This is good news for Tesla, of course, because it lowers the cost of building its electric cars (helping to grow Tesla's profits margins). It's bad news for MP Materials, though, because it means the dominant consumer of rare earths for electric cars seems to be exiting the rare earths-consumption business.
Tesla also may or may not improve its efficiency to the point where Tesla electric motors move from 25% to 50% to 75% to 100% rare earth-free. And this may happen over a long- or a medium- or a short-term time frame. The real risk, though, is that other automakers may peek over Tesla's shoulder and figure out how Elon Musk is making these efficiency improvements, so that they, too, can start buying less rare earth metals from MP going forward.
That's the real risk MP shareholders have to look out for -- and the real reason MP Materials stock is crashing today.