Modern vehicles—especially electric vehicles (EVs)—are marvels of engineering powered by far more than just batteries and software. At their core lie components made from rare earth elements (REEs)—a group of 17 chemically similar metals, including neodymium, praseodymium, dysprosium, and terbium. These metals are not truly “rare” in terms of availability, but they are difficult and expensive to extract and refine into usable forms.
Rare earth elements play a pivotal role in producing high-performance permanent magnets, which are critical for EV motors, power steering systems, regenerative braking, and various sensors. Without these magnets, the performance and efficiency of electric powertrains would be severely compromised.
Globally, as countries transition from internal combustion engines to cleaner EV alternatives, the demand for rare earth elements has soared. However, this surge in demand has run headfirst into a supply chain bottleneck—one that’s largely controlled by a single country: China.
In 2025, China tightened its grip on rare earth exports, triggering alarms across the world. For Indian automakers, who are rapidly expanding their EV lineups and already grappling with infrastructural and cost-related challenges, this move presents a new and formidable threat.
China’s Export Curbs and the Global Fallout
In April 2025, the Chinese government announced a series of export controls on key rare earth elements and finished magnet products. These new measures require:
- Exporters to obtain special licenses.
- End-users to disclose their applications in detail.
- Government vetting before shipments can be approved.
Given that China processes more than 90% of the world’s rare earth metals, these curbs have led to a sharp reduction in global availability, spiking prices and delaying shipments. For countries and industries dependent on Chinese supplies, this has triggered a crisis of confidence—and planning.
The global auto industry, particularly companies aggressively pushing EV production, has been among the hardest hit. And for India, which relies heavily on imports for critical EV components, the impact is already visible.
How Indian Automakers Are Being Affected
India’s automotive sector is deeply intertwined with global supply chains. While India has significant ambitions to become a major EV hub, it remains heavily dependent on Chinese imports for critical components—especially rare earth-based permanent magnets.
Here’s how the crisis is playing out in India:
- An estimated 80–90% of permanent magnets used in Indian EVs are sourced from China.
- Maruti Suzuki, India’s largest automaker, has already slashed its e‑Vitara production target from 26,000 to 8,000 units due to magnet shortages.
- Tata Motors and Jaguar Land Rover (JLR), though better buffered by inventory, are closely monitoring the situation.
- According to Crisil Ratings, a disruption in magnet supply lasting more than 30–45 days could lead to significant production slowdowns.
- Smaller EV makers and startups—without deep inventories or alternate suppliers—are even more vulnerable.
To manage the disruption, automakers are actively exploring short-term workarounds such as:
- Importing fully assembled motors or rotors from alternative sources.
- Considering rare-earth-free motor technologies like switched reluctance motors (SRMs).
- Sourcing from countries like Japan, Vietnam, Australia, and the United States to reduce single-country dependency.
Why the Industry Is Worried
The crisis comes at a particularly sensitive time for India’s auto sector. After years of slow growth in EV adoption, momentum has finally started to build. Government incentives, improved battery technologies, and falling vehicle costs have all contributed to a more favorable EV environment.
However, the rare earth crunch poses several risks:
- Delays in product launches could erode consumer confidence.
- Increased costs from importing scarce materials could hit margins.
- Disrupted supply chains might slow EV penetration targets and affect India’s competitiveness in global auto exports.
In addition, India lacks a robust domestic ecosystem for the mining, refining, and magnetization of rare earth elements. Despite having reserves—especially in coastal regions like Tamil Nadu, Odisha, and Andhra Pradesh—the infrastructure to extract and process these materials at commercial scale remains underdeveloped.
This imbalance has sparked growing calls for urgent policy support.
What Indian Automakers Want from the Government
In light of the escalating crisis, industry leaders and associations such as the Society of Indian Automobile Manufacturers (SIAM) have submitted detailed requests to the government. Their top demands include:
- Diplomatic Intervention: Direct engagement with Chinese authorities to ease export license processing and facilitate pending shipments.
- Strategic Stockpiling: Creation of national stockpiles of rare earth elements and finished magnets—similar to India’s crude oil reserves—to protect against future disruptions.
- Incentives for Local Production: A comprehensive incentive package to encourage domestic production of rare earth magnets and the development of local supply chains.
- Trade Diversification: Fast-tracked trade agreements and bilateral deals with mineral-rich countries like Australia, Brazil, Chile, and Vietnam to secure alternative sources.
- Support for R&D and Recycling: Financial and institutional backing for research into alternative motor technologies, urban mining, and rare earth recycling from old electronics and EV batteries.
Government of India’s Response: Strategic but Urgent Steps
The Indian government has responded with a blend of diplomatic, policy, and industrial measures:
1. Diplomatic Engagement
- Talks are underway with the Chinese government to streamline export approvals through the Ministry of Commerce and Ministry of External Affairs.
- Simultaneously, India is in negotiations with Chile and Peru—two key lithium and rare earth-rich nations—through ongoing free trade discussions.
2. Financial Incentives
- A ₹1,345 crore incentive scheme is in the works to promote domestic rare earth magnet manufacturing.
- A larger ₹3,500–₹5,000 crore Production-Linked Incentive (PLI) style scheme is expected to boost investment in critical mineral extraction and magnet technology.
3. Supporting Domestic Industry
- Indian firms like Mahindra, Uno Minda, and Sona Comstar are preparing to launch local magnet production units if policy incentives are confirmed.
- Indian Rare Earths Ltd (IREL) has paused certain exports and is working to ramp up domestic processing capacity for use in defense and automotive sectors.
- Initiatives like BatX–Rocklink are building India’s first rare earth magnet recycling and refining hub with support from European partners.
4. Long-Term Strategic Moves
- The government is updating its Critical Minerals Policy, with increased funding to agencies like the Geological Survey of India (GSI) and Atomic Minerals Directorate (AMD) for exploration.
- Through KABIL (Khanij Bidesh India Ltd), India is acquiring stakes in rare earth mining projects abroad to secure future supplies.
The Bigger Picture: A Strategic Opportunity
While the rare earth metals crisis is currently seen as a threat to India’s EV ambitions, it also presents a longer-term opportunity. With sizable reserves and a growing industrial base, India is well-positioned to:
- Develop a self-reliant rare earth processing ecosystem.
- Establish public-private partnerships for refining and magnetization.
- Lead in recycling rare earths from electronic waste and old EV batteries.
- Become a regional supply chain hub for Asia and beyond.
Achieving this vision, however, requires more than intent. It demands bold policy action, sustained funding, and industry-wide collaboration.
Conclusion: Between Risk and Resilience
The rare earth metals crisis is more than just a bump in the road—it is a stress test for India’s aspirations to lead in electric mobility. For automakers, it’s a wake-up call about the dangers of supply chain overdependence. For the government, it’s an urgent prompt to transform rare earths from a vulnerability into a strategic asset.
With the right mix of diplomacy, domestic production, and global partnerships, India can not only weather this storm but emerge stronger and more self-reliant—ready to lead the EV revolution on its own terms.
