Key takeaways
- TSMC explores rare-earth-free motors for semiconductor manufacturing equipment
- China's export restrictions expose another AI chip vulnerability
- Taiwan plans domestic rare-earth production within three years
Taiwan Semiconductor Manufacturing Company (NYSE: TSM) is exploring ways to remove rare-earth components from factory equipment, seeking to reduce its exposure to Chinese export controls that could disrupt production of advanced chips used by Nvidia, Apple and other technology companies.
The initiative, reported by Reuters on October 22, focuses on motors powering automated machinery inside semiconductor manufacturing facilities.
Three industry executives familiar with the discussions said TSMC has approached equipment suppliers about alternatives that do not require rare-earth magnets.
The effort remains preliminary, and the company has not introduced the technology across its manufacturing network.
TSMC Explores Rare-Earth-Free Motors as China Tightens Export Controls
Rare-earth magnets play an important role in industrial motors, particularly where equipment requires precise movement, efficiency and compact designs.
Inside semiconductor factories, automated machinery moves silicon wafers and other components through carefully controlled manufacturing processes.
A shortage of specialized motors or replacement components could therefore complicate equipment maintenance, factory expansion or production schedules.
According to Reuters, TSMC is surveying suppliers about the feasibility of replacing rare-earth-dependent motors in factory automation systems.
The discussions come as equipment manufacturers already face pressure to expand production. Dutch semiconductor supplier ASML recently outlined plans to produce more than 110 EUV machines annually by 2028.
China introduced export controls on selected rare-earth materials, magnets and related technologies in 2025, requiring licenses for certain international shipments.
These restrictions have created uncertainty for manufacturers that depend on specialized components, even when their immediate suppliers operate outside China.
However, Reuters did not establish that TSMC is currently experiencing a shortage or that its manufacturing output has been affected.
Why China's Rare-Earth Restrictions Matter for Nvidia and AMD
TSMC manufactures advanced processors for major technology companies, including Nvidia and AMD, making its production capacity critical to the artificial intelligence industry.
The company recently projected fourth-quarter revenue between $52.3 billion and $54.3 billion as demand for advanced computing continues expanding.
Meanwhile, AMD has outlined substantial Asian supply-chain investments, reflecting the industry's efforts to secure components and manufacturing capacity years in advance.
Rare-earth availability introduces a different risk.
Rather than affecting the design of AI processors directly, restrictions could complicate the supply of equipment needed to manufacture them.
Developing alternative motors could reduce some dependencies, but replacement systems would need to satisfy semiconductor factories' demanding performance and reliability requirements.
Such changes could also require additional testing and modifications to existing manufacturing equipment.
TSMC has not disclosed the expected cost of any transition or a timetable for deployment.
Taiwan Plans Rare-Earth Production as TSMC Expands Globally
Taiwan is separately working to strengthen domestic rare-earth capabilities.
In February, Economy Minister Kung Ming-hsin said the government would support the Industrial Technology Research Institute in developing a pilot production line within three years.
The project aims to establish capacity that could eventually satisfy approximately 50% of Taiwan's domestic rare-earth demand.
US officials have also expressed interest in cooperating with Taiwan to diversify critical-mineral supply chains and expand processing capacity.
The effort complements TSMC's broader Arizona factory expansion, although building semiconductor plants overseas does not automatically eliminate dependence on internationally sourced equipment.
China's mineral export policies have also attracted investor interest in alternative producers, including USA Rare Earth, which is developing domestic mining and magnet manufacturing capacity.
Meanwhile, semiconductor stocks have faced renewed selling pressure despite strong demand for AI infrastructure.
