GM cancels supply contract with $500 million U.S. magnet plant
Key Facts
General Motors has canceled a long-term supply agreement with E-VAC Magnetics, a subsidiary of Germany's VAC, for a $500 million rare-earth magnet plant in South Carolina, according to Reuters. The agency reported the cancellation and the dispute between the parties on October 22, after they entered arbitration. An Energy Fuels filing with the U.S. Securities and Exchange Commission showed that the notice terminating the agreement was dated July 1, 2026. E-VAC Magnetics initiated arbitration proceedings on July 7, 2026, according to the same filing. General Motors had been scheduled to buy 90% of the plant's output, tying the agreement to most of its planned sales. The plant's production capacity is slightly less than 2000 metric tons a year, according to Reuters.
The dispute centers on financial obligations related to unused production capacity, according to VAC's interim financial statements filed with the U.S. regulator. The company said "the dispute primarily concerns the calculation of compensation for unused production capacity under various contractual frameworks." E-VAC is asking the arbitration panel to rule that the termination of the supply agreement breaches its terms, according to the Energy Fuels filing. It is also seeking to compel the customer to make payments due throughout the remaining term of the contract, extending its claims to contractual obligations after termination. In its quarterly filing, General Motors said of arbitration proceedings involving electric vehicle supply agreements: "At this time, we cannot reasonably estimate any potential material loss or range of losses related to these matters."
The General Motors agreement was a cornerstone of financing for construction of the U.S. plant, according to Societe Generale. The bank said it financed a $335 million deal to support construction of E-VAC's facility and that the project financing was underpinned by a 10-year agreement with the automaker. The plant operates in an industry dominated by China, which accounted for 94% of global production of sintered permanent magnets in 2024, according to the International Energy Agency. These magnets are used in electric vehicles, wind turbines and industrial motors, according to the agency. Their uses also extend to artificial intelligence data centers and medical, aerospace and defense applications, spanning the automotive sector and other industrial and technology markets.
The dispute comes as General Motors scales back some of its electric vehicle investments amid weak demand and changes to U.S. policies supporting the sector, according to Reuters. The company previously announced $6 billion in charges to unwind some of those investments. That announcement included $4.2 billion in cash charges related to contract cancellations and settlements with suppliers that had been preparing for higher production volumes. In its North America segment, General Motors' annual report showed total electric vehicle realignment charges of $7.9 billion during 2025. Realignment costs continued in the following period, with the company recording additional net charges of $3.4 billion in the six months ended June 30, 2026, according to its half-year filing.
The dispute's potential financial impact extends to Energy Fuels' acquisition of VAC, the supplier's parent company, from Ara Partners. Energy Fuels had announced an agreement to buy the company's equity for cash and shares at a stated value of about $1.9 billion. An amendment to the acquisition agreement filed with the U.S. Securities and Exchange Commission provides for potential purchase price adjustments reflecting any loss in value associated with the disputed supply agreement. The provision also includes potential adjustments related to debt being repaid, linking the final consideration to these financial items. The original acquisition announcement set early 2027 as the expected closing date, subject to closing conditions and regulatory approvals.