As China tightens its grip on rare earth exports, Indian automakers risk delayed launches, disrupted festive season production and a recalibration of their electrification timelines.
15 Jul 2025 | 288 Views | By Prerna Lidhoo
They lack the sleek appeal of a scooter's body panel or the obvious presence of its touchscreen dashboard. But rare-earth magnets—small, dense, and tucked away deep inside electric motors—are what give EVs their zip, silence, and efficiency. For years, Indian electric vehicle makers barely gave them a second thought, as ...
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They lack the sleek appeal of a scooter's body panel or the obvious presence of its touchscreen dashboard. But rare-earth magnets—small, dense, and tucked away deep inside electric motors—are what give EVs their zip, silence, and efficiency. For years, Indian electric vehicle makers barely gave them a second thought, as supplies quietly flowed in from abroad. But a slow-burning overdependence on China has turned these unassuming components into a strategic headache.
At EV-focused firms like Ather Energy, Bajaj Auto, Tata Motors and TVS Motor, conversations once dominated by battery costs and design upgrades are now circling around a new pressure point. India’s EV dreams are confronting a hard geopolitical reality: a tightening chokehold on critical rare earth supplies from China.
These include neodymium-iron-boron (NdFeB) magnets, indispensable for high-performance EV motors, power steering systems, and even catalytic converters in traditional ICE (internal combustion engine) vehicles. Without them, even the sleekest electric vehicle is just a shell.
While both ICE and electric vehicles use rare earths, the latter are far more dependent, making EV-centric OEMs significantly more vulnerable to any disruption. According to ICRA, India imported nearly $200 million worth of these magnets in FY25, with 85% coming from China—an uncomfortable monopoly that’s now being flexed.
Following the US’s recent tariff hikes, Beijing has doubled down on restrictions, complicating supply flows. The ongoing supply crunch has become a stark reminder of the risks of over-dependence on a single source. While Union Commerce Minister Piyush Goyal calls it a “wake-up call,” India’s auto industry remains caught in uncertainty, with critical export licences for rare earth materials from China still pending which could begin to threaten production schedules and rollout plans.
India’s role in the global auto supply chain is increasingly shaped by geopolitical dynamics that are influencing access to rare earth materials. Korean automakers like Hyundai appear well-insulated, backed by strong global inventory buffers.
Japanese manufacturers, on the other hand, are facing more pressure—Suzuki, for instance, was recently forced to halt production of the Swift in Japan due to material shortages, amid long-standing trade tensions with China.
European companies have begun securing approvals to source rare earth elements from China, giving them a head start in managing the disruption. Indian OEMs, while lacking such international leverage and long-term stockpiles, will have to look at their operational agility for an edge.
Since global automakers in the U.S. and Europe are already securing export approvals or sourcing agreements with China, India remains at a disadvantage. Vinnie Mehta, Director General of the Automotive Component Manufacturers Association of India (ACMA) said that over time, countries like Germany, Japan, South Korea and the US were impacted, but the situation seems be easing for them. India, however, remains stuck.
According to Mehta, Germany’s strong economic exposure to China has meant that Chinese authorities have gradually started clearing licenses for them. “Some of the US and Europe-based companies are likely to start receiving rare earth export licenses,” says Kumar Rakesh, Auto Analyst at BNP Paribas.
Indian companies are yet to start receiving export license. This, he cautions, won’t just affect electric vehicles. Even for ICE vehicles, especially on the passenger vehicle side, it could start becoming a challenge if this issue continues. “It may not necessarily be a global issue in coming months.
It may impact India more,” he adds. For automakers, the fallout is already evident. Bajaj Auto plans to halve EV production, Ather Energy has trimmed output by 8–10%, and TVS Motor is quietly scaling back too. Maruti Suzuki, which had global ambitions for its e-Vitara SUV, has slashed its production target by two-thirds for the first half of FY26.
Rakesh Sharma, executive director at Bajaj Auto, didn’t mince words during the company’s Q4 earnings call: “This is an existential threat to the electric vehicle business.” He warned that unless the situation improved by July, production timelines, new launches, and even pricing could be impacted.
The Festive Pinch
Industry insiders estimate a production delay of 2 to 6 months and a potential price hike of 5–8%, especially if supplies aren’t restored before the festive season, a period that accounts for up to 35% of annual auto sales. The supply crunch is already trickling down to showrooms. According to the Federation of Automobile Dealers Associations (FADA), component shortages are constraining vehicle availability, just as consumer enquiries start to pick up post-monsoon.
“Dealer sentiment is tilting towards flat or negative growth,” said CS Vigneshwar, President, FADA. Only 38% of PV dealers and 21% of 2W dealers report healthy enquiry flows. That uncertainty could cool consumer sentiment just ahead of the festive spike, derailing what was meant to be a breakout year for electric mobility in India. Kumar, too, warns that while the current impact remains muted thanks to multiple factors, but the real disruption could start in August 2025.
“First, over the last few months, muted industry demand and some level of inventory by OEMs in the channel have helped mitigate the impact,” Kumar said. “The second factor is the raw material availability or the inventory of the raw material. This is where there is a little more disparity.
There are some companies which have higher availability, whereas others may not necessarily have a similar level of access and hence production could start getting impacted in a few weeks. But for different companies the timeline of impact would be different.” The biggest threat isn’t just to existing production, it is to new launches.
“The impact could be higher for new models, the sourcing for which may not have been finalised as it is for the existing models. If the new model launches get delayed, there is a downside risk to our 3–4% growth forecast for FY26,” says Rakesh. Festive season launches by top OEMs were expected to drive demand recovery.
If those timelines slip, it may necessitate a downward revision in projections. As of mid-June, over 50 Indian companies have filed export license applications with Chinese authorities amounting to more than 100 applications in total, but none have been approved so far. Mehta explains that part of the delay stems from procedural complications and lack of clarity on documentation.
The result is massive paperwork, inconsistent communication, and a growing queue of pending applications. The situation is rapidly becoming critical. “Inventory is running dry,” Mehta warns, adding that companies are staying quiet for competitive reasons. “Nobody wants to let competition ruin their business case, so they keep saying they’re managing. But we know the truth.”
According to Shridhar Kallani, Research Analyst – Automobiles at Axis Securities, the electric two-wheeler segment, with FY25 annual sales of 1.15 million units, is vulnerable to any disruption in this critical input. Even in the passenger vehicle (PV), OEMs like Tata Motors, Mahindra & Mahindra, MG Motors and Maruti Suzuki can also face pressure.
The lean "Just in Time" inventory strategy adopted by most Indian automakers, which typically ensures a 4–6 week buffer, leaves them especially exposed. “This strategy optimizes costs under normal conditions but leaves little room to absorb any extended supply disruptions,” Kallani said.
If shipments don’t resume soon, Axis Securities believes production schedules will be hit as early as late July 2025. "Yes, production disruptions are highly likely by July-end unless the supply situation improves swiftly,” Kallani cautioned. “If constraints persist, OEMs may have to pass on the burden to consumers, potentially leading to price hikes of up to 8% for affected EV models. This will depend on the duration and severity of the supply constraints."
No Panic Button?
Even as rare earth supply constraints from China continue to rattle global auto supply chains, OEMs like Tata Motors maintain it is not yet pressing the panic button. Indian OEMs need to draw on existing inventories and alternate sources to manage current demand. “Between inventory, alternate sources, we are okay,” said Tata Motors Group CFO P.B. Balaji.
“Obviously, we'll have to wait for how it plays out going forward. So, no panic buttons pressed yet.” Balaji emphasized that the auto industry has been through severe disruptions before, citing the semiconductor crisis of 2023 as a key learning point. “There are a lot of supply chain resilience [measures] that have been built in since then. Internally, we are equipped to process it better.
That doesn't mean we will not have a problem. It just means that we'll be able to cope with it better.” Shailesh Chandra, Managing Director of Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility, acknowledged that the rare earth situation in India remains different from the US or EU.
“We are comfortable for the next few months as far as Tata Motors is concerned, from a stock perspective,” he said, though he noted that the issue is being jointly taken up by SIAM and ACMA with the Ministry of Commerce and India’s ambassador in China. “In the mid to long term, there are multiple solutions. And we are working with the government in terms of a certain set of efforts of being more self-sufficient,” Chandra said.
He pointed out that Tata Motors has identified seven critical rare earth elements and is working to reduce their share in key components over time. “In the midterm, I think we will have to look for some alternate sources, alternate countries. In the long term, we see how we can completely eliminate them. But that would be the long term roadmap,” he adds.
Solutions: Long and Near-Term
India has two paths forward—both difficult. The first, long-term option is domestic rare earth processing. “It will take some time to ramp-up domestic production of rareearth minerals. Historically, we didn't do this because the cost-benefit ratio was not favorable,” Rakesh says. While the government has launched policies and incentives to encourage local mineral processing, it took China almost a decade to build capacity.
With government support, it could become viable now, however, it will be a long term solution,” he adds. According to Hemal N Thakkar, Senior Practice Leader and Director, CRISIL Market Intelligence & Analytics, despite having the fifth-largest reserves of rare earth elements globally—6.9 million tonnes, as per the U.S. Geological Survey, India has barely tapped into this resource.
“India produced only 2,900 tonnes of rare earth minerals, or less than 1% of global output, with the volume of magnets a fraction of this,” said Thakkar. While the current restrictions pose a near-term threat to production schedules, Thakkar believes this could lead to a broader recalibration.
“China’s selective approval of export licences may have only temporary gains. On the contrary, this is likely to trigger a global realignment of the supply chain, with countries diversifying their sources to avoid dependence on a single supplier,” he said. To keep production lines moving, companies are exploring stopgap measures. “One way to circumvent the current gridlock is to import assemblies from China with magnets integrated into those, which is yet allowed,” Thakkar said.
“But this quick-fix still does not address the broader issue of unhindered sourcing.” He adds that any delay in restoring supply chains may impact automobile production in a few weeks from now in case auto component suppliers do not receive approvals and are not in a position to import assembled electric motors on time.
To reduce future vulnerability, India is banking on self-reliance. In June, the government launched the National Critical Mineral Mission, with the Geological Survey of India set to conduct 1,200 new exploration projects between 2024 and 2031. A committee under the Ministry of Mines has already identified 30 critical minerals that require urgent domestic sourcing strategies.
But exploration is a long game. Until India can build its own processing and refining capabilities or secure supply from other nations, it will remain at the mercy of China’s geopolitical calculus. The second solution, more immediate approach is reprioritising the use of rare earth magnets.
“Companies are trying to identify use cases in which they do not necessarily need high-performance magnets,” Rakesh explains. Applications like power windows, electric seats, and steering systems could shift to ferrite-based alternatives, freeing up rare-earth magnets for core propulsion systems. A similar strategy was used during the semiconductor shortage, when OEMs stripped down features like infotainment and ADAS to keep production moving.
He believes that powertrain strategy itself might evolve if rare earth constraints persist. Some reshuffle in the portfolio of individual companies needs to be looked at,” he says. That includes rebalancing between EVs, CNG, hybrids, and hydrogen to meet both market and regulatory needs. Among the most promising technology alternatives are Externally Excited Motors (EEMs), already adopted by BMW and Renault, which do not require magnets.
“EEMs use copper coils to generate magnetic fields, making them both high-performing and geopolitically safer,” said Kallani. He also highlighted Switched Reluctance Motors (SRMs) and Induction Motors as magnet-free alternatives with growing viability thanks to improvements in control electronics. On the material front, aluminum-based windings and soft magnetic composites offer scalable, cost-effective substitutes.
Kallani further noted that in the battery segment, India must invest in LFP (lithium iron phosphate) and sodium-ion chemistries, both of which lower dependence on cobalt and nickel—materials with their own global supply risks. “By prioritizing these areas through public R&D, PLI incentives, and joint ventures, India can de-risk its EV transition while building IP leadership in rareearth- free technologies,” he added.
While countries like South Korea and Japan are reportedly exploring joint ventures and partnerships to develop alternative magnet processing capacities, India still lacks magnet-making capabilities despite possessing rare earth reserves. “There’s talk of a rare earth PLI scheme,” Mehta says, “but the biggest problem is lack of assurance.
Today, China isn’t giving magnets. Tomorrow, if they open up again, what happens to the investor who’s put in money here?” The challenge is systemic. “In automotive, beyond cells, we’ve over-relied on China,” Mehta adds, “just like pharma, where we’re big in generics but the chemicals come from China. The same is true for components and magnets. It’s a three-dimensional chess game now where geopolitics, competitiveness, and self-reliance all play a role.”
Raj Shah, principal consultant, Coherent Market Insights said, “While China currently holds a strong grip on the supply, India has a unique opportunity to shake things up with its abundant reserves and fresh strategic plans. Transitioning from being a mere importer to an active player in the value chain will depend on enhancing refining capabilities, fostering public-private partnerships, and navigating geopolitical challenges,” he said.
Shah adds that over the next ten years, if India invests wisely in rare earth metals infrastructure, it could emerge as a key regional processing hub — boosting domestic manufacturing and strengthening global supply chain resilience. In the longer term, the industry will need to secure supply, ramp up domestic processing, and reimagine its powertrain strategy. For now, though, the clock is ticking— and the second half of the year may be when the real test begins.