The most challenging issue in physical AI might be the magnet rather than the model.

      Actuators represent 40% to 60% of the bill of materials for a humanoid robot, with about 90% of the rare earth magnets used in these components refined in China. This indicates that the supply of components, rather than the designs themselves, poses a limitation on scaling up production. Under the Critical Raw Materials Act, Europe has set a limit for single-country supply by 2030, while Schaeffler is ramping up actuator production.

      The most significant challenge in physical AI isn't the artificial intelligence itself. There's a scarcity of actuators from a limited number of qualified manufacturers, and expanding capacity requires years, not just quarters, as noted by Nate Evans in Unite.ai. Evans, who co-founded Fictiv, a manufacturing sourcing platform acquired by the Japanese supplier MISUMI for $350 million, now leads MISUMI AI.

      However, the article fails to develop this point further. According to McKinsey, actuators comprise 40% to 60% of a humanoid robot's bill of materials, with the gearbox making up 30% to 50% of the actuator itself. This gearbox is where the bottleneck occurs. The primary makers of harmonic and strain wave drives include Harmonic Drive and Nabtesco, and the qualification cycles for these components are lengthy.

      The more substantial challenge lies within the motor. Each high-torque joint requires a neodymium magnet, and China holds around 90% of the rare earth magnet processing capacity. The statistics for mining are less dire, with China responsible for roughly 69% of extraction, indicating that refining, rather than mining, is the critical constraint.

      Europe has enacted legislation to address this issue. Both light and heavy rare earths are included in the strategic raw materials list, with a target for 2030 that no single third country supplies more than 65% of consumption. The Critical Raw Materials Act also pertains to industrial robots directly, as Articles 28 and 29 reference them. Starting in 2028, magnets weighing more than 0.2 kg will require labeling, digital records, and details on recycled content.

      Currently, there is only one company in Europe addressing this industrial challenge. Schaeffler has invested in Humanoid, the London-based startup that raised $152 million in July, while Bosch is involved in building the robots. Schaeffler is also a supplier for Humanoid, being the preferred supplier for over half of its joint actuators under a contract that runs until 2031 and involves a significant number of units.

      Schaeffler plans to purchase a certain number of these robots for its own facilities by 2032, beginning operations in Herzogenaurach in December. TNW believes that Europe could succeed in deployment despite China's dominance over 63% of the hardware supply chain.

      However, the article concludes without offering a solution. An actuator produced in Herzogenaurach will still contain a magnet refined in China, and qualifying suppliers will not change this reality. The issue is more about policy than procurement; Europe has a 65% cap set for 2030, a labeling requirement for 2028, and very limited refining capabilities to fulfill either mandate.