India’s automotive sector is facing mounting risks as China tightens controls on rare earth magnet exports, a move that could disrupt electric vehicle (EV) production and slow the industry’s growth trajectory. Crisil Ratings warns that even a disruption lasting over a month can delay EV launches, impact vehicle production, and push back the sector’s momentum.
Why Rare Earth Magnets Matter
Rare earth magnets are low-cost but crucial components in permanent magnet synchronous motors (PMSMs), which are widely used in EVs and hybrid vehicles for their high torque and energy efficiency. In internal combustion engine (ICE) vehicles, these magnets play a key role in electric power steering and other motorized systems1. India relies on China for over 80% of its 540-tonne magnet imports, making the industry highly vulnerable to any supply bottlenecks.
China’s New Export Restrictions
In April 2025, China imposed export restrictions on seven rare earth elements and finished magnets, requiring detailed end-use declarations and banning re-exports linked to defense or the US. The new rules have led to significant delays in shipment clearances, with the approval process now taking at least 45 days. As a result, a growing backlog has emerged, tightening global supply chains and leaving Indian automakers with just 4–6 weeks of inventory.
Impact on India’s Auto and EV Sector
The supply squeeze comes at a critical time, as India’s auto sector is gearing up for aggressive EV rollouts, including over a dozen new models built on PMSM platforms. If the delays persist, EV production could face deferrals or rescheduling as early as July 2025, with broader impacts on two-wheelers and ICE passenger vehicles if the situation worsens. Crisil forecasts passenger vehicle volume growth of 2–4% in FY26, with EVs expected to rise 35–40% and electric two-wheelers by 27%—but these projections could soften if supply constraints continue.
India’s Response: Short- and Long-Term Strategies
To counter the crisis, the Indian government and automakers are pursuing a twin-pronged strategy:
- Short Term: Building strategic inventories, seeking alternative suppliers, and ramping up domestic assembly under the Production Linked Incentive (PLI) scheme.
- Long Term: Accelerating rare earth exploration, developing local processing capabilities, and investing in recycling infrastructure to reduce import dependency.
Diplomatic efforts are also underway, with India maintaining direct communication with Chinese authorities to stabilize supply flows and seeking predictability in trade practices.
Global and Strategic Implications
China’s dominance in rare earth processing—controlling over 90% of global magnet output—has left industries worldwide exposed to supply shocks. These magnets are not only vital for EVs but are also used in home appliances and renewable energy sectors. India is actively working to diversify its sources, including joint exploration initiatives with Central Asian nations to buffer against future disruptions.
