India Mulls Tweaks to EV PLI Rules Amid China Supply Gridlock

The automotive industry is bracing for impact as China has implemented stricter rules on exporting rare-earth elements and related magnets, requiring import permits from April. The government might consider reviewing the domestic value addition (DVA) criteria for the automotive Production-Linked Incentive (PLI) scheme and the PM E-Drive demand subsidy scheme if the rare-earth magnet supply disruption from China persists over the long term, according to a senior government official.

China produces 60% of the world’s rare earth elements and controls around 90% of the global refining capacity. Rare-earth magnets are important, particularly for EVs, due to their higher performance in small form factors, enhanced energy efficiency and critical functionality in both powertrains and digital systems.

The import approvals from China are now difficult and complex. It 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.

Over 30 applications for import permits from Indian companies were pending with China in the second week of June.The Heavy Industries minister HD Kumaraswamy said: “Each company is trying to make sure that its disruption is minimal.There was understanding that there could be some disruption, but as of today, things look better. Nobody has come back to us and said they are halting production because you are aware that fully-assembled components can be imported.”

To mitigate production disruptions, companies are now considering importing complete or sub-assemblies from China. However, this strategy poses a challenge for electric vehicle manufacturers, as they rely on incentives from the PLI-AUTO and PM E-Drive schemes, which mandate specific DVA requirements. While magnets and batteries are typically exempted from DVA calculations, importing full assemblies of motors or other components could significantly reduce their DVA.

When asked about a potential review of the DVA criteria for the PLI-AUTO and PM E-Drive schemes as companies might have no alternative but to import full assemblies if the magnet supply does not resume, Ministry of Heavy Industries Secretary Kamran Rizvi said: "If the disruption is for a long-term, then we might look at it.”