Electrification supply deals once again come under strain due to volatile government policy. By Stewart Burnett
General Motors terminated its long-term supply agreement with Vacuumschmelze’s (VAC) new rare-earth magnet plant in South Carolina on 1 July, according to regulatory filings and a person familiar with the matter (telling Reuters). The development is one of GM’s many electrification walkbacks since 2025, and leaves a US$500m factory without the customer it was built to serve.
The dispute, now in arbitration, shows how the broader US retreat from electric vehicles (EVs) is undermining the domestic magnet supply chain that Washington wants to build as an alternative to China. VAC opened the plant in late 2025 with a capacity of just under 2,000 tonnes annually. 90% of this capacity was earmarked for GM under a 2023 agreement covering at least ten years and a wide range of models, with the remainder going to the US government.
GM’s efforts to walk away from the agreement formally began in April, according to filings. The automaker confirmed in its own filing that a supplier of EV traction-motor components is seeking damages after GM ended a “strategic sourcing agreement”, but it has not explained why. Meanwhile VAC’s US unit, e-VAC Magnetics, alleges wrongful termination.
The dispute also hangs over Energy Fuels, the uranium producer that had agreed back in June to buy VAC for US$1.9bn. The company has stated on the record that it was aware of the disagreement during negotiations, but also that there may be “potential adjustments to our purchase price of VAC depending on the outcome of the arbitration”. At the same time, it has insisted there were “no concerns” from its side about VAC’s commercial prospects. VAC serves more than 1,000 customers from plants in Germany, Malaysia and elsewhere.
GM’s EV retreat, a trend shared among all of the Detroit Three and a majority of global automakers, explains much of the backdrop. It took a US$6bn charge in January to unwind multiple of its EV investments—part of more than US$10.9bn in EV-related charges since mid-2025—and has reportedly cut planned Bolt output by 75% as US demand weakens following the elimination of federal incentives. North American EV sales fell 15% in the first half, leaving a plant sized for GM’s 2023 ambitions facing demand that has since contracted sharply.
The stakes extend beyond one contract—or even a specific industry—and into geopolitics. As it stands, China produces about 90% of the world’s permanent magnets, and its export restrictions on rare earths and magnets in 2025 briefly disrupted Western vehicle production. Washington has since backed MP Materials with a Pentagon equity stake and a price floor, and GM also has a separate magnet supply agreement with MP in Texas.
This arguably leaves US policy pulling in two directions: the administration is funding domestic magnet supply while having removed the EV incentives that created much of the demand for it. Magnet demand will not disappear entirely, since hybrids and plug-in hybrids, which GM plans to reintroduce in North America from 2027, also use permanent-magnet motors. However, they need far less material per vehicle than the EV volumes GM planned for in 2023.
The VAC dispute shows that domestic magnet supply cannot rest on automaker contracts while US EV demand still depends heavily on policy measures that can be withdrawn with changing administrations. The plant’s future now depends on whether defence and other industrial customers can replace GM, and the arbitration will put a price on what walking away from a supply chain built to reduce reliance on China actually costs.
