India’s EV push could face a massive jolt from China's rare earth magnets curb

Experts say building that ecosystem — from mining to refining to magnet production — will require sustained policy support, technical expertise, and capital infusion.

India’s electric vehicle industry is facing a potential supply chain crisis, triggered by a shortage of a small but vital component: rare earth magnets. Rare earths, a group of elements used in everyday technologies like smartphones and EVs, are difficult and expensive to extract and process—and their production often comes with significant environmental costs.

In a fresh flashpoint of geopolitical tensions, China has tightened export controls on these magnets, a move seen as part of its strategic counter to US-led trade pressure, particularly under Donald Trump's administration, which slapped tariffs as high as 145 percent on Chinese goods earlier this year.

But the ripple effects are now being felt much closer to home.

TVS Motor Company has joined Bajaj Auto in sounding the alarm, warning that EV production could grind to a halt as early as next month. The magnets, crucial to electric motor function, have been stuck at Chinese ports since April 4. For Indian EV makers — especially in the cost-sensitive two-wheeler segment — this poses an existential challenge.

Also read: China's rare earth magnet curb: After Bajaj Auto, TVS Motor fears production hit, price rise

To clear shipments, Indian manufacturers must now self-declare the magnets’ end use, undergo a multi-tiered certification process through Indian authorities, and then await final approval from the Chinese Embassy. About 30 applications have reportedly made it through the Indian side but are still pending Chinese clearance.

"Indian EV OEMs are highly exposed," said Shridhar Kallani, auto analyst at Axis Securities told Moneycontrol. "With FY25 two-wheeler EV sales pegged at 1.15 million units, and negligible local production of these magnets, we are looking at a serious supply-side risk."

Rare earth magnets are integral to Brushless DC (BLDC) and Permanent Magnet Synchronous Motor (PMSM) motors — the very heart of EV propulsion systems. And with China accounting for nearly 90 percent of global magnet output, finding substitutes is neither easy nor quick. Alternatives from Malaysia, Vietnam, or Australia lack both scale and cost competitiveness. Testing and validation of new sources could take years.

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If the disruption drags on, manufacturers may be forced to pass on the cost to consumers — price hikes of up to 8 percent for EV models are on the table. Beyond prices, the pressure may hit product launch timelines and expansion plans. "The industry could face margin erosions of 50 to 100 basis points, especially in the two-wheeler EV space," Kallani added.

"Established OEMs may delay new launches or scale back volumes to manage profitability. While long-term EV adoption remains intact, near-term disruptions may lead to higher prices, slower penetration in cost-sensitive segments, and delays in capacity expansion," Ajit Mishra, Senior Vice President at Religare Broking, said. Unlike PV or CV segments, where price hikes can be partially absorbed or passed on with less demand impact, 2Ws EV buyers are more price-sensitive. Also, limited differentiation and high competition restrict pricing power. Hence, persistent cost pressures will disproportionately hurt affordability and volumes in the 2W EV segment, he added.

The Society of Indian Automobile Manufacturers (SIAM) has raised concerns with the government, cautioning that dwindling magnet inventories may cause production halts within weeks. In response, the government is reportedly considering dispatching a delegation of auto industry leaders to Beijing to press for a resolution.

The implications go beyond electric vehicles. A report by Nomura warned that internal combustion engine (ICE) vehicles are also at risk. Magnets are used in everything from e-axles and wheel sensors to speedometers and speakers. Despite this, the brokerage has maintained its five percent year-on-year growth forecast for the passenger vehicle industry in FY26.

In 2023, India imported $13.1 million worth of rare earth compounds, ranking 17th globally, despite having the fifth-largest reserves of rare earth metals, at an estimated 6.9 million metric tonnes. Yet, actual production stood at a mere 2,900 metric tonnes last year. This mismatch underscores a long-standing vulnerability: a domestic supply chain that simply doesn’t exist.

Experts say building that ecosystem — from mining to refining to magnet production — will require sustained policy support, technical expertise, and capital infusion. India must act now if it wants to avoid being exposed to external shocks.

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