The Indian automotive sector, particularly its electric vehicle (EV) segment, is grappling with a looming supply-chain disruption due to China's stringent export restrictions on rare earth magnets. These low-cost yet functionally critical components are indispensable for modern vehicles, and their scarcity threatens to impact production, new model launches, and the industry's ambitious growth trajectory.
What are Rare Earth Magnets and why are they critical?
Rare earth magnets are made from alloys of rare earth elements. They are integral to Permanent Magnet Synchronous Motors (PMSMs), which are widely used in EVs for their high torque, energy efficiency, and compact size. Hybrid vehicles also rely on them for efficient propulsion. In Internal Combustion Engine (ICE) vehicles, their use is primarily limited to electric power steering and other motorized systems. Elements like Dysprosium (Dy), Terbium (Tb), Neodymium (Nd), and Praseodymium (Pr) are crucial for these magnets, especially in high-performance applications.
China's dominance and new restrictions
China is the world's dominant exporter of rare earth magnets, controlling over 70% of global Rare Earth Element (REE) production and over 90% of refining capacity. In April 2025, Beijing imposed stricter export controls on seven rare earth elements and finished magnets, mandating export licenses. This revised framework demands detailed end-use disclosures and client declarations, including confirmation that products will not be used in defense or re-exported to the US. This added scrutiny has prolonged the clearance process to at least 45 days, leading to significant delays and a growing backlog that is tightening global supply chains.
Impact on the Indian automotive sector
India, which sourced over 80% of its approximately 540 tonnes of magnet imports from China last fiscal year, has begun to feel the pinch. By the end of May 2025, despite nearly 30 import requests from Indian companies being endorsed by the Indian government, none had received approval from Chinese authorities, and no shipments had arrived.
EV motors use rare earth elements like dysprosium and terbium to maintain efficiency at high operating temperatures. E-2Ws have shorter lead time for design changes (2-3 months), but PVs and buses, where powertrain performance and space constraints are more stringent, would require a longer gestation period of 6-12 months for a complete motor redesign.
Industry executives indicate that current inventories may last only a few weeks to a month. According to Anuj Sethi, senior director, Crisil Ratings, "The supply squeeze comes just as the auto sector is preparing for aggressive EV rollouts... prolonged delays could start affecting vehicle production, with EV models facing deferrals or rescheduling from July 2025." A broader impact on passenger vehicles (PVs) and two-wheelers (2W) could follow if the bottlenecks persist. Maruti Suzuki, for instance, reportedly plans to cut production of its debut electric vehicle, the e-Vitara, due to these challenges. Bajaj Auto's Executive Director, Rakesh Sharma, warned that July production could be "seriously impaired" without relief.
Vulnerability and strategic response
Unlike semiconductors, which have a diversified global supply base, over 90% of rare earth magnet processing is concentrated in China, leaving limited short-term alternatives. Poonam Upadhyay, Director, Crisil Ratings, notes that while these magnets contribute less than 5% to a vehicle's cost, they are "indispensable." Automakers like Mahindra & Mahindra are actively de-risking their supply chains by exploring alternative suppliers in countries such as Vietnam, Indonesia, Japan, Australia, and the US, and optimizing existing inventories.
Both the Indian government and the automotive industry are addressing the crisis on two fronts. Short-term efforts focus on building strategic inventories, tapping alternative suppliers, and accelerating domestic assembly under Production Linked Incentive (PLI) schemes. Long-term strategies involve fast-tracking rare earth exploration in India, building local production capacity, and investing in recycling infrastructure to reduce import dependency.
The situation remains dynamic, with Indian auto industry participants engaging with the Ministry of External Affairs and relevant Chinese ministries to secure interim relief and fast-track approvals. The pace of China's export approvals for these critical magnets remains the immediate monitorable for the Indian automotive sector.