This paper is divided into two parts: first, an interpretation of the policy fundamentals, and second, an analysis of the impacts on electric vehicles (EVs) from a trading perspective.
I. Interpretation of the Policy Fundamentals
Amid the reshaping of the global supply chain, U.S. President Donald Trump officially launched Project Vault, a strategic critical mineral reserve program, on February 2, 2026, announcing an initial investment of approximately $12 billion to establish the first commercial reserve mechanism for critical minerals in U.S. history. The plan intends to provide a loan of up to $10 billion through the Export-Import Bank of the United States (Ex-Im Bank), combined with approximately $1.67 billion in private capital, to purchase and stockpile a package of critical metal materials including rare earth elements, gallium, cobalt, lithium, and nickel for automakers, technology enterprises, and other downstream industries. This is aimed at mitigating sudden supply disruptions and sharp price fluctuations, and enhancing the raw material security of U.S. manufacturing in the production of electric vehicles, batteries, advanced electronic devices, and defense equipment.
This "mineral version of the Strategic Petroleum Reserve" layout is clearly rooted in the Trump administration’s overall strategy for supply chain security. In the past, the U.S. has been highly reliant on foreign imports for many critical minerals; in particular, China holds a global dominant position in the production and deep processing of rare earths and some critical metals. This dependence exposed significant vulnerabilities after China imposed a temporary export restriction in 2025. Drawing on the operational model of the Strategic Petroleum Reserve (SPR), Project Vault plans to build an inventory buffer equivalent to at least about 60 days of industrial raw material demand, so as to reduce the risk of market supply shortages and strengthen the buffer against price volatility.
The strategic design features a distinct model of "federal support + private participation". Unlike the traditional state-owned inventory system, Project Vault will attract major automakers, technology companies, and commodity traders to participate in resource procurement, inventory management and distribution through a public-private partnership (PPP) mechanism. It will provide commercial services such as on-demand withdrawal and price locking for downstream enterprises, thereby avoiding the capital pressure and price risks caused by enterprises holding large-scale inventories on their own. This operational model is the first of its kind in the U.S. mineral market, reflecting the government’s attempt to integrate market-oriented mechanisms into industrial policies.
Driven by the policy, the stock prices of U.S. rare earth and critical mining-related companies generally rose following the announcement, reflecting market expectations that the policy will boost domestic mining demand and investment enthusiasm. This also indicates, on the other hand, that Project Vault is not only a national security tool, but is also likely to become an important signal to boost the domestic mining industry and downstream manufacturing.
In the long run, however, this strategy faces structural challenges and practical implementation risks: although the U.S. itself has some critical mineral resources, its domestic processing and deep processing capacity still cannot fully replace the existing external supply, especially the smelting and fine separation of rare earth elements which are highly dependent on foreign facilities. In addition, mineral mining and processing themselves are characterized by high capital investment, long cycles and environmental controversies. This means that even if the reserve mechanism is established, the actual results of supply chain diversification will take years to materialize.
At the geopolitical level, Project Vault will also trigger broader impacts within the framework of China-U.S. competition: as the U.S. attempts to reduce its reliance on China’s critical mineral supply and at the same time ally with countries including Australia and Canada for mineral supply chain cooperation, this move is expected to drive the formation of a new global mineral supply chain pattern centered on "value chain security", but it may also intensify strategic competition and trade frictions between major powers in the resource field.
Overall, Trump’s $12 billion mineral reserve plan is not only a fiscal strategic deployment, but also marks a new chapter for the U.S. in global supply chain security, economic structural resilience and high-tech competition strategy. Its effectiveness will become an important observation indicator for the future global critical mineral market and industrial layout.
II. What Are the Corresponding Trading Actions of Project Vault in the EV Supply Chain? (Analysis Background: We optimistically assume that the U.S. new energy vehicle industry will still develop upward in the future)
1) Qualitative Definition First: Project Vault Is Not "Buying Minerals", but Transforming Critical Minerals from Commodities into "Quasi-Strategic Assets", thus Rewriting the Risk Premium
Announced by Trump on February 2, 2026, Project Vault has a scale of approximately $12 billion, with a structure of about $10 billion in financing provided by Ex-Im Bank plus about $2 billion in private capital. Traders including Traxys, Mercuria and Hartree are responsible for procurement and operation and maintenance, with the goal of forming an emergency inventory of about 60 days and providing supply guarantees such as "emergency withdrawal/price locking" for member enterprises. This means that a new buyer—"state-endorsed inventory demand that disregards short-term gains in times of pressure"—will be permanently embedded in the pricing of critical minerals. This is not a one-off positive factor, but an additional "put option" on the tail risks of supply shocks, and it changes who bears the volatility in the industrial chain.
2) Why It Is Core to Electric Vehicles (EVs): It Equates to Providing "Policy-Based Inventory Insurance" for the EV Supply Chain, and Forms a Coupling with the Compliance Constraints of the IRA
The EV sector is the most sensitive because battery materials account for a high weight in the vehicle BOM and have high price elasticity. When compliance thresholds rise and U.S. domestic processing capacity is still insufficient, the real risk for automakers is not "being unable to buy minerals", but "buying non-compliant minerals that lead to the invalidation of subsidies (though there are no subsidies now... yet this still points the way for us) → the collapse of demand and pricing models". Project Vault turns the "availability of compliant raw materials" into a national project, which is equivalent to adding a compliant supply buffer pool at a key node of the subsidy system. Although the U.S. federal EV purchase tax credit expired last year, we can still glimpse the importance of the compliance of battery critical mineral sources from the content of IRA 30D and a series of subsequent U.S. actions. Under the original regulations, to qualify for the $3,750 subsidy, the critical minerals in the battery must come from one of the following regions: ① the U.S. itself; ② countries with a free trade agreement with the U.S., with the required compliance ratio increasing year by year (60% in 2025). This is why the U.S. is now in a hurry to launch Project Vault, develop domestic minerals and build an allied supply chain. In addition, the FEOC clause of the U.S. has set a red line: if a battery uses critical minerals or components from a "foreign entity of concern (e.g., China)", it will directly lose subsidy eligibility.
3) The Key Concern Is Not "Increased Demand", but "Who Absorbs the Volatility": The Profit Pool of Battery Materials May Be Redistributed from the Upper Stream to the Midstream/Downstream
In the traditional cycle, super profits for materials such as lithium, nickel and cobalt often emerge during periods of supply constraints, with the upper stream capturing the volatility dividend through spot and short-term orders, and the downstream (batteries/complete vehicles) bearing the pressure passively. The "inventory + finance" design of Project Vault (membership fees, emergency withdrawal, price-locking mechanisms) is logically more like transferring part of the price volatility from the industrial chain to the inventory carrier (including government financing), allowing the downstream to obtain more stable input costs and higher predictability of capacity utilization. If this mechanism persists and expands, the long-term result may be that the "crisis premium" of the upper stream is compressed, while the midstream with compliant supply and manufacturing capacity (North American processing, North American batteries) and the downstream (compliant vehicle models) gain a more stable profit margin range. From a trading perspective, this is a volatility redistribution event.
4) Key Transmission Chain: It Will First Affect Not Lithium, but the Links That Are "Most Bottlenecked and Hardest to Comply" for the U.S. (or Other Countries Except China) — Graphite/Rare Earths/Gallium, etc.
News mentions that the reserve mineral types cover rare earths, lithium, etc., and also refers to critical materials such as gallium. However, from the perspective of the "bottleneck priority" of tradable links in the EV industrial chain, the real shortcomings are usually:
- Anode (natural/synthetic graphite): higher concentration of compliance and processing, weak substitution elasticity;
- Rare earth permanent magnets (drive motor chain): highly sensitive to geopolitical risk premiums;
- In addition, some "critical minor metals" (e.g., gallium) affect high-end electronics and national defense more, but will influence capital expenditure and inventory behavior through a broader "risk appetite for critical materials".
Therefore, Project Vault can be understood as the U.S. introducing a "policy buyer" and an "emergency supply put option" at its most vulnerable nodes — the market’s pricing of tail risks for these categories is likely to change first.
5) "Inventory = Buying Demand" Is Only the Surface; a Deeper Aspect: It Involves Traders, Implying a Possible Future "Policy-Inventory-Arbitrage" Triangular Structure
Project Vault explicitly designates traders to be responsible for procurement and operation. When the inventory mechanism is deeply bound to traders, two types of changes may occur in price signals:
- The term structure may be more prone to "policy-based backwardation/contango management" — the government/members care more about supply security and stability, and may be willing to pay a higher premium for near-month contracts during tight periods; while anchoring on financing costs to lower inventory holding costs during loose periods.
- Basis and regional price spreads will become more important: as long as "compliant sources" are institutionalized, a more stable price spread band may form between North American compliant materials and non-compliant materials, which provides space for relative value strategies (e.g., assets related to the compliant chain vs. assets related to the non-compliant chain).
6) Second-Order Effects on U.S. EV Enterprises: While Improving Subsidy Certainty, Project Vault May Also Change Automakers’ Choice of Technical Routes
When "compliant supply" becomes a policy project, automakers will be more realistic in choosing chemical systems: it is not about who has the lowest cost, but who has more controllable and less volatile compliant supply. This will strengthen the U.S. market’s preference for certain technical routes (e.g., high nickel, low cobalt/cobalt-free, silicon-based anodes, increased proportion of recycled materials, etc.), because these routes are more easily satisfied by the combination of "allied resources + North American processing + recycling"; links highly dependent on a single processing center will be systematically "de-risked". This will be reflected in the direction of capital expenditure, the terms of supply agreements, and the bargaining structure of automakers with battery suppliers.
7) Risk Pricing of "Policy Sustainability": This Plan Is Essentially Engaging in the "Commoditization of the National Balance Sheet", with Two Key Considerations
According to the structure disclosed by Reuters/FT, Ex-Im Bank provides large-scale financing, the private sector participates as members/capital contributors, and the plan is described as long-term and potentially profitable. We break this down into two verifiable hypotheses:
- Credibility of the rules: Is the inventory release/replenishment mechanism transparent? Will it be intervened by political cycles (elections/inflation)? Once the market deems the "policy put option" unreliable, the tail risk premium will quickly rebound.
- Speed of compliant supply expansion: Inventory can only solve the "shortage period" and cannot replace processing capacity. If the expansion of North American processing capacity is slow, inventory will become a "scarce commodity that gets more expensive with use", which will instead push up compliant price spreads and suppress EV penetration.
Therefore, in trading, we need to monitor simultaneously: the detailed implementation rules of the policy, the membership mechanism, the procurement list, and the commissioning pace of North American processing projects.
8) Trading Framework
- Relative Value: Trade the price spread of the "compliant chain" relative to the "non-compliant chain" (at the asset level, this can be mapped to: companies benefiting from North American processing/recycling/compliant mineral sources vs. companies dependent on a single processing center).
- Volatility Trading: Treat Project Vault as a structural variable that "reduces tail risks": for EV and battery links that were most afraid of supply disruptions/soaring mineral prices in the past, the implied volatility may move down systematically; on the contrary, the volatility premium of pure cyclical products in the upper stream may be compressed.
- Event-Driven: Focus on catalysts: new members of the "critical mineral trade club", procurement list and pace, expansion of the membership list, and any escalation of countermeasures related to China’s export controls. Reuters mentioned that the U.S. will announce more countries joining relevant trade arrangements. These events will determine the credibility of the "policy put option" and the speed of market reaction.
9) Spillover Effects on China and the Global EV Chain: Fundamentals of Supply and Demand Remain Unchanged for the Time Being, and "Geopolitical Compliance" Will Become a Long-Term Pricing Factor
For the global EV industry, Project Vault is more like dividing the supply chain into two pricing systems: the compliant chain gains more stable financing and demand, while the non-compliant chain bears a higher policy discount when entering the North American market. In the short term, the cost advantage of China’s supply chain will not be immediately eroded, but in the medium and long term, the North American market will use "rules + inventory + financing" to partially offset the cost gap, thus changing the profit function of cross-regional EV competition.
Although U.S. new energy vehicle sales are currently very weak after the U.S. Build Back Better Act (BBBA) canceled the new energy vehicle tax credit, I still believe that this analysis framework is still of reference significance. If we further look at the attitudes of different U.S. states towards the development of NEVs, Canada’s latest policies, or even the North American energy storage market, we can still use the same thinking to find the current volatile links.
Yang Le (Lesley) SMM Lithium Battery Analyst yangle@smm.cn
