China’s clampdown on the export of rare earth minerals and compounds has left the nascent Indian EV industry gasping for breath as it now finds itself without a critical raw material.
05 Jun 2025 | 5004 Views | By Kiran Murali
It was introduced as a tit-for-tat response to US imposition of ‘reciprocal tariffs’ on global nations, but China’s clampdown on the export of rare earth minerals is threatening to deliver a crippling blow to India’s nascent electric vehicle industry.
The curbs, imposed in early April, have severely disrupted the ...
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It was introduced as a tit-for-tat response to US imposition of ‘reciprocal tariffs’ on global nations, but China’s clampdown on the export of rare earth minerals is threatening to deliver a crippling blow to India’s nascent electric vehicle industry.
The curbs, imposed in early April, have severely disrupted the production of lightweight magnets, critical to the design of the modern EV, with several Indian manufacturers warning of the entire production process grinding to a halt in days.
Rare-earth magnets, due to their smaller sizes and higher efficiencies, are widely used in EV powertrains and in digital systems across the auto industry, as well as in the production of smartphones, aerospace, defense, and energy systems.
Over the years, China has managed to monopolize the supply chain of rare earths, without which the magnets cannot be manufactured. Today, the country produces 60% of the world’s rare earth elements and controls around 90% of the global refining capacity.
At nearly 2,850 tonnes, India was estimated to be the fifth-largest importer of rare earth permanent magnets and magnet alloys from China last year, up a whopping 49% over 2023 – the fastest growth among the top five importing countries. The supply choke has ignited widespread anxiety in companies and countries around the world, with officials and executives scrambling to sort out the issue amid concerns that production of critical goods could soon come to a standstill.
The Throttle
In April, China implemented stricter rules on exporting rare-earth elements and related magnets, requiring import permits. These changes were initially seen as a response to tariffs imposed by the U.S., but the impact is now rippling across global automotive supply chains and other industries.
China has not completely stopped the export of these magnets. But import approvals for rare earth magnets are now subject to a difficult and complex procedure. This intricate system mandates an end-use declaration confirming the magnets will not be used for military purposes, along with certifications from multiple Indian ministries, the Chinese embassy, and final export clearance from Chinese authorities, creating significant logistical hurdles for importers.
“We first need endorsements from the DGFT under the Ministry of Commerce and then the Ministry of External Affairs. These documents are then submitted to the Chinese embassy, which provides an endorsement or token number. This is shared with the supplier or exporter in China, who forwards it to their provincial government. After provincial approval, it goes to China’s commerce ministry in Beijing, which ultimately decides whether to grant the license,” said a senior industry executive from the auto components industry.
Another senior industry executive said that, in addition to the standard requirements, many other documents are being asked for, but there is no clear guidance or defined process outlining exactly what needs to be submitted.
“This is a major supply chain disruption, especially for electric vehicles as rare earth metals are used extensively in the electric motors which is a core component. Rare earth magnets have high magnetic energy storage capacity with low coercivity at high operating temperatures,” Rajat Mahajan, Partner and Automotive Sector Leader at Deloitte India, said.
Industry Red Flags
Original Equipment Makers (OEMs) like Bajaj Auto and TVS Motors have already voiced their concerns publicly and warned of potential disruption in production.
“As we speak, supplies and stocks are getting depleted. And if there is no relief and there are no shipments, then July production will get seriously impaired…I think such is the case with the entire auto industry,” Bajaj Auto’s Executive Director Rakesh Sharma said recently.
TVS Motor’s Managing Director Sudarshan Venu has also raised a red flag over the supply chain issue. "The impact of the ban will begin to reflect in production by June or July," Venu said in an interaction with a TV channel earlier this month. He also warned that the electric two-wheeler segment, which is witnessing higher adoption of electric vehicles, could be especially exposed.
The supply chain disruption comes at a time when automakers in India are planning to launch several electric vehicles in the market. Major car makers – Mahindra & Mahindra, JSW MG Motor India and Tata Motors are aggressively pushing the sales of their recently launched electric models, while Maruti Suzuki is set to launch its first electric model - e Vitara – in a couple of months.
No other major OEMs apart from Bajaj Auto and TVS have come forward to voice their concerns about a potential disruption in output publicly. Maruti Suzuki, on June 2, said there was no immediate material impact on production due to China's export curbs and is in talks with the government on the matter.
However, a Reuters report said auto industry manufacturers told government officials at the end of May that production could stall within days due to supply constraints. At an industry meeting with India's heavy industries ministry in May end, Maruti Suzuki reportedly said it might be forced to stop production of one of its car models in early June if the magnet issue is not resolved soon.
In a recent report, Nomura noted that the potential impact could extend beyond electric vehicles to internal combustion engine (ICE) cars as well, since magnets are used in various components such as e-axles, sensors (including those for brakes, wheels, oxygen, and engines), steering assemblies, speedometers, and speakers.
Industry Delegation to China
Amid uncertainties regarding the supply of rare-earth magnets, the government is now planning to send a team of automotive industry leaders to China to discuss the restoration of magnet supplies at the earliest. The delegation is likely to visit China within the next 2–3 weeks.
“We are trying to send a delegation—some stakeholders. They are showing interest. I think they want to go and discuss with China… I think probably another 2–3 weeks they will go,” Minister of Heavy Industries H.D. Kumaraswamy told reporters recently. However, the minister noted that government officials would not be part of the delegation.
Another industry source said government officials are in talks with their counterparts in China to facilitate the visit of the industry team, which will include executives from all major OEMs here. The delegates are now awaiting visa approval and appointments from the Chinese government.
Reuters has reported that the concerns over the curbs have prompted a Japanese business delegation to plan a visit to Beijing in early June, where they will meet with the Ministry of Commerce. Reflecting similar anxieties, European diplomats from nations with substantial automotive sectors have also initiated requests for emergency meetings with Chinese officials in recent weeks.
Alternative?
The heavy reliance on China for critical components is again back in the limelight with this issue. Several auto component makers in India, and globally, are actively developing and researching for an alternative to replace rare-earth magnets.
“This has been an R&D topic for the automotive industry for a long time but till now other magnetic materials have not seen large-scale commercial usage in applications like EVs. Also, there are not enough rare earth magnets to recycle at this point in time to satisfy the EV volumes,” Deloitte’s Mahajan said.
“It will not be easy for the OEMs to suddenly change course on Powertrain as well as on alternate material. This situation will hopefully get resolved via diplomatic channels, but if it continues then we may see a shift towards powertrains for large OEMs.”
Auto component companies like Mahle, Valeo, Sterling Gtake, Sona Comstar, Greaves Cotton, Chara Technologies and Attron Automotive are all working on an alternative to rare-earth magnet motors or other systems.
“In India, while we are working with the industry and the government and the Chinese Embassy to speed up the process of importing magnets from China, we're also evaluating alternate materials, including Ferrite, different grades of magnets, different technologies, as well as different supply sources,” Sona Comstar CEO Vivek Vikram Singh told investors recently.
Valeo has a partnership with Mahle to develop an innovative magnet-free electric axle system, while Sterling Gtake has tied up with UK-based Advanced Electric Machines (AEM) to manufacture rare earth magnet-free traction motors.
Sterling GTake Managing Director Jaideep Wadhwa has also noted that he believes the technology could obviously change dramatically depending on what happens with rare earth magnets from China and expects the technology to gradually gain acceptance and eventually be adopted across the mainstream automobile industry.
“Electric Vehicles are India’s new ticket to energy independence, but rare earths are the new oil. While rare-earth materials have been important for building compact, efficient motors—they aren’t the only way forward. New ferrite-based motors from recent innovations now offer both superior performance and a 100% indigenous supply chain. This is where India must invest: in local manufacturing that meets all of the country's needs,” said Ankit Somani, co-founder of Conifer.io, a startup building electric powertrains.
Technology Challenges
While magnet-free motors or rare-earth-free magnets offer a path to reducing dependence on critical materials, many industry experts say these technologies come with their own set of challenges for mainstream adoption, especially in high-performance applications like electric vehicles.
Issues like lower power density, lower efficiency, and increased size and weight of motors are the major concerns, and those alternative technologies are yet to see any large-scale commercial usage.
For instance, Sona Comstar has been working on magnet-less motors and their management noted that it has not yet reached the required level of efficiency. “The technology is very sound, but the efficiency was not coming to [the required levels].
But we will continue to work on that. It's good to accelerate that for sure,” the CEO said. “In 2021 itself, we announced the development of non-rare earth, or rare-earth-free motors. Those we already have, and we can do them even as of today. But that requires customer acceptance. Like I said, it does increase the weight of the motor, so we need customer approvals for those.”
An official from another company with a substantial export presence pointed out how technology standards have to be kept in sync in markets across the world, and how this often slows the adoption of new solutions. “We are part of a global supply chain, so adopting a technological approach that deviates from international standards could be challenging. Additionally, customers likely would not accept a drop in performance. If we were to switch to larger non-rare earth magnets or motors without magnets, we would probably need to redesign existing components,” he noted.
Component makers believed there should be ways in the long term to counter the threat posed when a material's supply can be used as a geo-strategic negotiating tool. This experience highlights the critical lesson that complete reliance on any one external source is no longer viable in an increasingly unpredictable global landscape.