Taiwan Semiconductor Manufacturing Company (NYSE: TSM) is exploring ways to remove rare-earth components from its factory equipment, seeking to reduce its exposure to Chinese export controls that could disrupt production of the advanced chips used by Nvidia, Apple and other technology companies.

The initiative, reported by Reuters on October 22, focuses on the motors that power 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 such technology across its manufacturing network.

Why Rare-Earth Motors Matter in Chip fabs

Rare-earth magnets play an important role in industrial motors, particularly where equipment requires precise movement, efficiency and compact designs. The dominant type in industrial use, neodymium-iron-boron, produces a strong magnetic field from a small volume — a property that underpins the precise, energy-efficient motion these systems require. 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 output. 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. The reach of those rules reflects the structure of the industry: despite the name, rare-earth elements are not geologically scarce, but the separation and refining stages that turn ore into usable material are heavily concentrated in China, which accounts for the large majority of global refining and magnet manufacturing. 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.

What the Restrictions Mean for Nvidia and AMD Supply Chains

TSMC manufactures advanced processors for major technology companies, including Nvidia and AMD, making 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 to expand. Meanwhile, AMD has outlined substantial supply-chain investments in Asia, reflecting the industry's broader efforts to secure components and manufacturing capacity years in advance.

Rare-earth availability introduces a different kind of risk. Rather than affecting the design of AI processors directly, the restrictions could complicate the supply of equipment needed to manufacture them. Developing alternative 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. Whether the effort moves beyond feasibility surveys into tested, production-ready components is one indicator of whether such dependencies can be reduced in practice.

Taiwan's Push for Domestic Rare-Earth Production

Taiwan is separately working to strengthen its 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 factory expansion in Arizona, 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.