CHENNAI: Rare earth magnets, though low-cost, play a critical role in electric and hybrid vehicles. If China’s recent export restrictions and shipment delays continue, India’s automotive sector could face supply disruptions, especially in electric vehicle (EV) production.
These magnets are essential for permanent magnet synchronous motors (PMSMs), widely used in EVs and hybrids due to their high efficiency and compact size. In internal combustion engine (ICE) vehicles, their use is limited to systems like electric power steering.
In April 2025, China tightened controls on seven rare earth elements and finished magnets. Export licences now require detailed disclosures, including end-use and non-defence declarations. The new process takes at least 45 days, causing delays and tightening global supply. China is currently the world’s top exporter of rare earth elements.
India imported over 80% of its ~540 tonnes of rare earth magnets from China last fiscal year. As of late May, 30 Indian import requests had been cleared by Indian authorities but none approved by China—no shipments have arrived.
“The shortage comes as India gears up for major EV launches. With limited inventory, delays beyond a month could disrupt production from July 2025, especially EV models. If prolonged, it may also impact ICE and two-wheeler (2W) production,” says Anuj Sethi, Senior Director at Crisil Ratings.
In FY26, passenger vehicle (PV) volumes are expected to grow 2–4%, with electric PVs surging 35–40% from a low base. Electric 2Ws may grow about 27%, outpacing the broader 2W segment. But supply issues could slow this momentum.
Unlike semiconductors—which have diversified supply chains—over 90% of rare earth magnet processing happens in China. During the pandemic, supplies were stable, so automakers didn’t build strategic buffers. That’s now changing.
According to Poonam Upadhyay, Director at Crisil Ratings, despite a make up of less than 5% of vehicle cost, these magnets are critical.
"Automakers are turning to suppliers in Vietnam, Indonesia, Japan, Australia, and the US, while managing existing stock. If shortages persist, magnets may be redirected to ICE models, affecting EV rollout,” she added.
In response, both government and automakers are working on short- and long-term solutions. These include building strategic inventories, securing alternate suppliers, expanding domestic assembly under incentive schemes, and investing in rare earth mining and recycling. However, the key factor to watch is how quickly China clears the export approvals.