USA Rare Earth Expands to France with Government Tax Credits, But Core U.S. Risks Remain Unaddressed

What happened

USA Rare Earth, through its subsidiary LCM Europe, announced plans to develop a 3,750 metric ton per annum metal and alloy production facility in Lacq, France, with direct tax credits from the French government to finance the project. This move extends USAR's vertically integrated rare-earth and magnet strategy beyond its U.S.-focused Stillwater plant and Round Top deposit, aiming to leverage European support for allied supply chains. However, the DeepValue report highlights that USAR is pre-revenue with negative equity, a going-concern warning, and heavy capital needs, trading at a ~$1.7B market cap that prices in optimistic assumptions about U.S. policy backing and execution. The French tax credits provide non-dilutive funding for LCM Europe and enhance feedstock capacity, but they do not directly mitigate the critical risks of Stillwater's Q1 2026 commissioning, ongoing cash burn, or the lack of substantial U.S. government support compared to peers. Consequently, while strategically positive for diversification, this announcement fails to alter the fundamental execution and funding challenges underpinning the report's 'POTENTIAL SELL' rating.

Implication

The tax credits reduce near-term funding pressure for LCM Europe, potentially lowering dilution risk for that segment and supporting third-party metal and alloy revenues. Expanding in Europe diversifies USAR's geographic exposure and aligns with allied critical-minerals initiatives, which could attract additional customers and enhance strategic positioning. However, the Stillwater magnet plant remains the primary near-term revenue driver, with its unproven commissioning and conversion of pre-orders into contracts posing significant execution risks. Without matching U.S. government equity or loan packages like those secured by peers MP Materials and Vulcan Elements, USAR's capital structure remains reliant on dilutive equity raises to fund its broader build-out. Investors should therefore view this development as a minor positive that does not justify the current valuation premium, reinforcing the need for cautious position sizing and close monitoring of U.S. milestones.

Thesis delta

The DeepValue report's thesis emphasizes USAR's dependence on flawless U.S. execution and policy support for Stillwater and Round Top, with high dilution risk if funding falls short. This news slightly shifts the thesis by adding European capacity and non-dilutive funding, which diversifies revenue streams and reduces some capital pressure, but it does not address the core U.S. risks or alter the optimistic assumptions embedded in the stock price. Thus, the overall 'POTENTIAL SELL' rating remains intact, as the fundamental challenges of pre-revenue status and going-concern warnings persist unchanged.