A recent report by Nuvama Wealth underscores rising concerns across India’s auto industry as China tightens exports of rare earth magnets (REMs), sparking a looming supply chain bottleneck with significant implications for electric vehicle (EV) manufacturers.
Since April, China—responsible for over 90 per cent of global REM processing—has restricted exports of key rare earth elements such as samarium, terbium, and dysprosium, which are essential for the manufacture of permanent magnets used in EV motors. These curbs, while initially targeting defense applications, have inadvertently triggered procurement hurdles for auto OEMs globally, including India.
EVs Take the Hardest Hit
The impact is most pronounced on EVs, especially those using permanent magnet synchronous motors (PMSMs), which rely on REMs for efficiency and high-temperature performance. According to the report, BEVs with dual motors use up to 4.45 kg of REMs per vehicle, in stark contrast to just 0.14 kg in conventional ICE vehicles.
Domestic electric car penetration remains modest—around 3% for passenger vehicles and 6% for two-wheelers—but OEMs such as Maruti Suzuki have already scaled back production. The company slashed its FY26 target from 85,000 to 65,000 EV units and delayed the launch of the e-Vitara. Others like Bajaj Auto and TVS Motor have inventory for only a month and warn of output disruptions starting July.
Smaller Players More Exposed
Pure-play EV startups like Ola Electric and Ather Energy are expected to face heavier cost burdens, potentially affecting margins. In contrast, Hero MotoCorp and Honda—whose EV portfolios are relatively limited—face a softer blow.
Notably, Mahindra & Mahindra appears better insulated, holding a two-month inventory buffer and exploring supply de-risking strategies.
Red Tape Deepens Crisis
China’s export approval process, involving multiple layers of Indian and Chinese government verification, takes up to 45 days. As of May-end, none of the ~30 Indian firms that applied for export certificates had received approvals. One notable rejection was that of Sona BLW Precision Forgings.
However, a silver lining has emerged. NDTV reports indicate that China may soon ease restrictions for Indian auto firms, with nearly 10 entities reportedly in the final stages of approval.
Limited Global Alternatives
The Nuvama report flags the lack of scalable alternatives. While countries like the U.S., Australia, and Myanmar have mining capacity, China remains irreplaceable in refining and magnet production. The report cautions that, unless diversification accelerates, short-term supply shocks will persist.