China’s Rare Earth Export Curbs: A Looming Threat to Global Carmakers and a Strategic Wake-Up Call for India

A significant threat of large-scale production disruption is looming over global automotive manufacturers due to China’s recent restrictions on the export of rare earth elements (REEs). The gravity of the situation is underscored by recent news that Suzuki Motor Corporation has halted production of its popular Swift model as of the end of May 2025, citing supply shortages of rare earth materials. This development has sparked industry-wide concerns about a potential medium-term production crisis—paralleling the semiconductor shortage that followed the COVID-19 pandemic.

Suzuki is not alone. Ford Motor Company also had to temporarily halt production at its Chicago plant last month, suspending output of the Explorer sport utility vehicle for a week due to REE supply constraints. In response, global automakers have scrambled to identify alternative supply chains and are even contemplating the stockpiling of critical components to mitigate the risk of prolonged disruptions.

The restriction on rare earth exports will particularly impact the production of electric vehicles (EVs), as these materials are essential in manufacturing the permanent magnets that allow electric motors to function efficiently at high temperatures. However, the effect extends beyond EVs. REEs are also widely used in traditional internal combustion engine (ICE) vehicles, including in electronic power steering systems, start-stop mechanisms, cooling fans, fuel pumps, window motors, temperature sensors, and advanced safety systems such as radar and ADAS.

What Are Rare Earth Elements, and How Did China Come to Dominate?

Rare earth elements are a group of 17 chemically similar metallic elements that play a crucial role in a vast array of modern technologies. They are indispensable in the production of fighter jets, nuclear reactors, wind turbines, and smartphones, owing to their unique magnetic, luminescent, and electrochemical properties.

Despite their name, rare earths are not particularly scarce in nature. The challenge lies in the fact that they are rarely found in concentrated, economically viable deposits, and their extraction and refinement are both technically complex and environmentally hazardous. While many countries possess REE reserves, few have developed the necessary infrastructure and processing capabilities.

China has leveraged this gap to its advantage. Over the past several decades, it has built an overwhelming dominance in both the mining and refining of rare earth elements. Currently, China accounts for approximately 70% of global REE production and controls nearly 90% of the refining capacity. Crucially, this dominance has been achieved not through superior technology but through economies of scale and aggressive pricing strategies. Historically, whenever other nations attempted to scale up REE production, Chinese suppliers undercut them by flooding the market with below-cost materials, rendering foreign ventures economically unsustainable.

While solvent extraction technology for REE processing was available in the Western world as early as the 1950s, production gradually migrated to China, which offered lower environmental oversight and labor costs. Today, China’s grip on the REE market is such that it has become a strategic tool in geopolitical negotiations—akin to the role semiconductors have played in recent years.

Of the 17 rare earth elements, seven have now been placed under China’s restricted export list. These include samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. Exporting these materials now requires a special license, significantly increasing lead times for products such as EV motors and hard disk drives.

REEs in Everyday Life

While the automotive industry has received the most attention, rare earth elements have extensive applications in daily life and critical industries. For instance:

Terbium is used to produce vivid colors in smartphone screens and enhances magnet durability in high-temperature environments such as aircraft, submarines, and missile systems.

Yttrium is crucial for cancer treatment, especially in targeting liver tumors, and is also used in laser-based dental and medical surgeries.

Gadolinium is widely used in magnetic resonance imaging (MRI). Patients are often injected with gadolinium-based contrast agents to enhance visibility of internal organs.

Rare Earth Economics: More About Availability Than Cost

Interestingly, the current crisis is more about timely availability than cost. For example, the United States imported rare earths worth $170 million in 2024 and $180 million in 2023. India, on the other hand, imported just 460 tonnes, valued at approximately ₹300 crore in FY25. Although these numbers appear modest in dollar terms, their strategic value is disproportionately high.

The supply constraints are most acutely felt in the EV sector. Terbium and dysprosium are essential components in neodymium-iron-boron (NdFeB) magnets, which help maintain resistance to demagnetization at high temperatures—crucial for sustaining motor performance during prolonged or intensive driving. These magnets are a core component in Permanent Magnet Synchronous Motors (PMSMs), widely used in EVs for their superior efficiency and power density.

In PMSMs, the rotor contains permanent magnets that create a steady magnetic field. This field interacts with the alternating current in the stator to produce a rotating electromagnetic field, which in turn drives the rotor. In simpler terms, the magnet is the heart of motion in EV motors. Dysprosium-doped magnets can be more compact and lightweight while maintaining high thermal resilience, translating into greater vehicle efficiency, extended driving range, and reduced cooling requirements.

India: Facing Limited Near-Term Impact, But Strategic Lessons to Learn

Indian EV manufacturers such as Bajaj Auto and TVS Motor have already warned of possible production disruptions starting July 2025 due to REE shortages. Key suppliers like Sona BLW, which provides motor components to several Indian OEMs, have also flagged global supply chain constraints arising from China’s curbs.

However, India’s immediate exposure is relatively limited. EVs still account for less than 5% of total two-wheeler and passenger vehicle sales. As a result, the impact of any supply-led disruption on full-year volumes is likely to be moderate. Interestingly, the situation could even prove to be a silver lining for some manufacturers, as EVs currently yield lower operating margins than ICE vehicles.

Nonetheless, if REE shortages also affect components in ICE vehicles—such as electronic steering or ADAS systems—then volume growth for the entire auto sector could slow to low single digits, especially given that current car inventories are already over 60 days.

EVs: Most Vulnerable to Supply Shocks

In terms of volume loss, EVs are most vulnerable, followed by passenger ICE vehicles and two-wheelers. Commercial vehicles are least affected. If the supply crunch continues, E-2W (electric two-wheeler) inventories may last only 1.5–2 months unless alternative sources are secured.

To put this in perspective: magnets in E-2Ws cost around ₹150 per unit, while those in PVs range from ₹2,000 to ₹25,000 depending on features. The issue is not cost, but availability and the difficulty of redesign. While E-2Ws allow relatively quick design adjustments (2–3 months), passenger vehicles and buses require 6–12 months to re-engineer powertrains, owing to stringent space and performance constraints.

China's Leverage and the Global Response

It’s important to recognize that China’s wielding of REEs is not an invincible economic weapon. Most major economies possess both the technology and the reserves to develop alternative supply chains. What’s lacking is scale, sustainable pricing models, and environmental regulation frameworks.

Historically, much of the REE mined in the United States was shipped to China for processing. As such, the current situation is triggering a structural rethink of global supply chains—akin to how the world restructured its semiconductor dependencies in the wake of Taiwan’s supply bottlenecks.

Automakers are already exploring workarounds. Some are considering manufacturing electric motors in China or shipping U.S.-assembled motors to China for magnet installation, since the export controls apply only to unfinished REE products, not final assemblies.

Simultaneously, efforts are underway to reduce reliance on REEs altogether. Several companies are experimenting with substituting permanent magnets with lanthanum and cerium—more abundant elements. Tesla has announced that its next-generation platform will eliminate rare earths entirely. Meanwhile, firms like Hitachi in Japan have developed methods to recover over 95% of magnets from end-of-life hard drives and air conditioner compressors, paving the way for commercial-scale recycling.

A Strategic Wake-Up Call for India

Though the rare earth supply issue has triggered immediate concerns in the automotive industry, it has far-reaching implications for national security. REEs are critical to military technologies, including jet engines, missile guidance systems, and advanced radar. Consequently, a prolonged disruption is unlikely, as major powers will prioritize securing their supply lines.

Curiously, while China enjoys dominance over REE mining and processing, it remains significantly dependent on imports for boron—a key component in high-strength magnets, along with iron and neodymium. Global boron reserves are concentrated in just two locations: one in California’s Mojave Desert and another in Turkey. China’s cordial relations with Turkey, partly influenced by geopolitical considerations involving the Uyghur population, further highlight the complex interdependence underlying the REE supply chain.

The most valuable takeaway from the current crisis is this: the story of minerals is not one of dependence but of interdependence. Turning critical minerals into weapons in a new geopolitical cold war could ultimately harm all stakeholders.

India must view this moment as a strategic inflection point. While the country has known reserves of REEs, most are still at preliminary exploration stages (G3/G4). Setting up a domestic REE processing facility may take about 18 months, but aligning downstream applications could take 2–3 years. The ongoing disruption presents a timely opportunity to fast-track initiatives under the National Critical Mineral Mission. A transparent, investor-friendly framework should be established, allowing private firms to participate in exploration and extraction of critical minerals.

Conclusion

China’s restrictions on rare earth exports have exposed a critical vulnerability in the global automotive and technology supply chains. While the near-term impact may be muted for some markets like India, the long-term strategic implications are profound. Automakers, policymakers, and industrial planners must treat this not merely as a supply hiccup but as a clarion call to redesign global supply networks and reduce reliance on single-source critical materials.