India's Auto Industry Faces Rare Earth Magnet Shortage by Mid-July

India's automobile industry faces a supply crisis as inventories of rare earth magnets are projected to run out by mid-July 2025 for automotive applications, according to rating agency ICRA. The shortage stems from China's tightened export controls and delayed shipment clearances, creating uncertainty for manufacturers already recovering from previous supply chain disruptions.

The affected magnets, specifically neodymium-iron-boron (NdFeB) variants, are essential components in high-performance automotive applications. These magnets power traction motors in electric vehicles and power steering systems in both electric and internal combustion engine vehicles. Their strength and efficiency make them irreplaceable for performance-sensitive applications, unlike conventional ferrite magnets used in less critical components such as wiper motors and window regulators.

"The current unease over rare earth magnet supplies feels all too familiar for India's automobile industry," said Jitin Makkar, Senior Vice President and Group Head of Corporate Ratings at ICRA. The industry previously faced disruption during the semiconductor supply crisis of 2021-22, which reduced passenger vehicle production by approximately 100,000 units, representing a 4% decline.

The financial impact is significant despite the relatively modest trade value. In electric two-wheelers, motors typically cost between Rs. 8,000 and Rs. 15,000, with rare earth magnets accounting for 30% of the total motor unit cost. India imported approximately $200 million worth of these magnets in FY2025 for automotive and non-automotive applications, with 85% sourced from China.

Indian auto component manufacturers and original equipment manufacturers are exploring several contingency options to address the shortage. These include importing fully assembled motors from China, shipping rotors to China for magnet assembly before re-importing, substituting rare earth magnets with alternative materials that achieve similar performance without classification as rare earth magnets, and developing magnet-free motors using electromagnets or other inductive mechanisms.

However, each alternative presents challenges. The proposed solutions involve logistical complications, regulatory hurdles, and engineering complexities. Implementing these alternatives would require accelerated development, testing, and validation cycles to minimize production disruptions.

The crisis particularly threatens India's expanding electric vehicle segment, which relies heavily on these specialized magnets for motor performance. The concentrated sourcing from China highlights the vulnerability of supply chains dependent on single-source suppliers for critical components.

The current disruption may serve as a catalyst for diversification in both sourcing strategies and technological innovation. Manufacturers are under pressure to develop supply chain resilience while maintaining production schedules and product performance standards.

The shortage represents the latest challenge for India's automotive sector, which has been working to establish itself as a manufacturing hub for both conventional and electric vehicles. The industry's response to this crisis will likely influence future supply chain strategies and technology development priorities.