MediumV Technology Geopolitics & AI22 October 2026, Thursday

TSMC seeks rare-earth-free motors to blunt China's licensing leverage

TSMC has asked its suppliers whether factory automation equipment could switch to motors that contain no rare earths, Reuters reported on 22 October, citing 3 industry executives. 2 of the sources said the talks are at an early stage and have not turned into a broad shift.

Location: HSINCHU

According to the Reuters report carried by Global Banking & Finance Review on 22 October, the chipmaker wants to reduce its exposure to Chinese-sourced magnets in the motors that drive moving parts in its highly automated fabs. The report is the first on the subject; TSMC declined to comment, and the Taipei Times ran the same story on 23 October. 1 of the sources said the main motive was the possibility that China cuts off supply. Reuters says a shortage of these parts could disrupt production across 4 customer chains: smartphones, AI, data centres and defence.

The constraint stems from the licensing regime Beijing set up in 2025. That year China made certain rare earth materials, magnets and processing technology subject to prior approval. According to a 6 October summary by Startup Fortune, case-by-case licensing introduced in April 2025 for 7 medium and heavy elements, including samarium, terbium and dysprosium, remains in force. The list expanded in October 2025 and the extraterritorial licensing rule were suspended for 1 year; that suspension expires on 10 November 2026, and as of 6 October Beijing had not announced an extension.

Washington and Taipei have also been seeking alternatives throughout 2026. In June, Raymond Greene, director of AIT, the US representative office in Taiwan, said the United States was developing alternative sources with Taiwan and other partners. In February Economy Minister Kung Ming-hsin announced that the Industrial Technology Research Institute (ITRI) would build a pilot line able to meet an estimated 50% of domestic demand within 3 years. BigGo Finance's 22 October summary expects no change to orders in the near term; the real question is at what cost substitute motors can meet the 2 core requirements of precision and reliability.

Talay assessment

Bottom line

TSMC's survey shows rare earth risk moving down from raw material prices to the moving parts of the production line. The effort is at an early stage and is not expected to change production in the near term. The date that matters is 10 November: if Beijing does not extend the suspension, the search for substitutes accelerates; if it does, the issue stays on suppliers' roadmaps. Either way, the April 2025 licensing regime remains in Beijing's hands.

Likely effects

Equipment suppliersUncertain1–6 months
Suppliers that may have to rethink motor and magnet design face new product openings and cost pressure at once; precision testing will take time.
China's bargaining leverageNegative6 months+
The leading chipmaker's search for substitutes erodes the power of the licensing lever over time; Beijing sees a narrowing window in which to use it.
Taiwan's industrial policyPositive6 months+
The ITRI pilot line and cooperation with the US put a concrete timetable on reducing Taiwan's dependence on Chinese raw materials and could speed up public support.

Possibilities, ranked

1
Suspension extended, slow substitution55%
Beijing extends or de facto maintains the suspension on 10 November; TSMC stays at the pilot-trial stage with suppliers and a broad switch is postponed.
Watch: A Chinese commerce ministry announcement on the suspension before 10 November
2
Suspension lapses, substitution speeds up30%
If the suspension is not renewed, equipment suppliers bring forward rare-earth-free motor designs and TSMC places its first orders.
Watch: The suspension expiring unrenewed on 10 November, and product announcements from suppliers
3
Broad deal shelves the issue15%
A US–China truce text includes a clause covering rare earth licences, and substitution is shelved on cost grounds.
Watch: A general licence clause covering the 7 heavy elements in the truce text

Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.

Market reaction

Indicators affected

Executives cited▼ 3
ITRI pilot line target▲ 50% in 3 years
China suspension ends▼ 10 November

Bottom line

Likely effects

Possibilities, ranked

Sources