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The EU is working on proposals to jump-start home output of a type of specialist magnet vital in electric car motors by offering support to local producers so they can compete with Chinese rivals, sources close to the situation said.

The moves to support production of rare earth permanent magnets would mirror legislation introduced in the United States earlier this month to offer tax credits to makers of the devices there.

The United States, the EU and Britain aim to expand output of the super-strong magnets used in electric vehicles (EVs) and wind turbines to help meet targets to cut carbon emissions and lessen dependence on China, whose producers currently dominate the global sector.

European firms say they cannot compete with Chinese producers, which they say get subsidies worth about a fifth of their raw materials costs, helping them to supply 90% of the global market for the magnets.

The proposals being considered by the EU include both cheap financing and compensation for higher raw material costs, said two sources who have seen the plans but were not authorised to speak publicly about them.

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