China rare earth curbs choke India automakers, add to tensions

China, the world’s biggest producer of rare earth elements, has begun restricting exports of the minerals as it increasingly weaponizes its dominance over this supply chain and uses it as geopolitical leverage over opponents.

US President Donald Trump and Chinese President Xi Jinping on Thursday agreed to further talks to ease up the supplies of rare earth magnets that are used in making everything from fighter jets to electric vehicles and smartphones.

Tariff crossfire

The Chinese curbs are causing pain to automakers across the world, notably in the US and Europe as they face major delays in securing supplies. In India, businesses also face an added layer of uncertainty given the country’s complicated ties with China.

While the two sides recently eased tensions along border areas, India continues to maintain restrictions on Chinese investments.

In early April, as a reaction to US’s steep tariffs, China imposed stricter new end-user certification process. This requires importers to confirm magnets won’t be used for defense or re-exported to the US. The process takes at least 45 days and is now facing a global backlog, the people said.

At least 30 import applications have been endorsed by the Indian government but none of the companies have been approved nor have any shipments arrived, the people said. At least 11 applications from companies in the other parts of the world have passed muster.

India’s Ministry of Heavy Industries and Ministry of Commerce and Industry didn’t reply to requests for comment. China’s Ministry of Commerce didn’t respond to a faxed request for comment.

Onerous process

Indian automakers sought urgent talks between China and India to fast-track pending approvals and ease the onerous process, according to a May 28 presentation by the Society of Indian Automobile Manufacturers, or SIAM, to Indian government officials.

While many companies have received Chinese embassy endorsements, SIAM said none have got final approvals by China’s Ministry of Commerce in its presentation.

Magnets made from rare earths are important for fossil-fueled cars but absolutely critical for electric vehicles. “Even if one magnetized part is missing, the vehicle cannot be built,” SIAM said.

The industry body also cautioned in this presentation that if imports continue to be restricted, automakers’ supplies of magnets will run out as early as this month and “some Indian players might even consider setting up operations in China.”

SIAM did not respond to an email requesting comments.

Complex maze

Indian firms are navigating a complex certification maze involving more than half a dozen steps: securing notarized and apostilled documents, getting them endorsed by the Chinese embassy and sending it to exporters in China.

The paperwork is then filed by their Chinese suppliers as part of their permit application to Chinese authorities.

“The rare earth situation is a very difficult one,” Bajaj Auto Ltd.’s Executive Director Rakesh Sharma told analysts last week. “Supplies and stocks are getting depleted as we speak, and if there’s no relief in shipments, production will be seriously impaired in July.

A delegation of Indian businesses is planning a visit this month to their Chinese counterparts facilitated by the Indian Embassy in Beijing, the people said.

China’s ask

The Indian Embassy has reached out to China’s Commerce Ministry too, seeking quick disposal of applications and transparency in the process, they said.

India so far has not directly intervened. The Ministry of External Affairs didn’t respond to a email seeking comments on this issue.

This meeting between India and Chinese business groups could help the Narendra Modi government determine what could be China’s ask in return for easing the supplies of rare earth magnets, they said.

A meeting was held at the Prime Minster Narendra Modi’s office earlier this week to discuss options for breaking this impasse, one person said.

Indian government officials told the industry representatives to start working on alternative supply chains for rare earth minerals and develop indigenous refining capacity to pare reliance on China, the people said.

Developing local refining capacity, however, would be a years-long project rather than immediate fix.

Magnet-free designs

The Indian government has also been advising firms to explore ferrite magnets or magnet-free designs — options that come with trade-offs in cost and performance, the people said.

Since none of these will ease the immediate threat of disruption for Indian automakers, Indian automakers have begun weighing expensive workarounds: importing motors or sub-assemblies, shifting focus to fossil-fuel fed vehicles or prioritizing exports over domestic EVs.

Rare earth magnets are “the backbone of electric mobility and advanced electronics,” said Vinnie Mehta, Director General of India’s Automotive Component Manufacturers Association said.

While pain arising from “import restrictions has been escalated to the highest levels in government,” Mehta says this reliance on a single supplier has emerged as a strategic risk.