China’s rare earth magnet export restrictions disrupt India’s EV sector, prompting government action, local supply chain development, and recycling efforts. Explore impacts on Tata, Mahindra, and India’s EV policy.
China’s export restrictions on rare earth magnets, implemented on April 4, 2025, have significantly disrupted India’s electric vehicle (EV) sector. With China controlling over 90% of global rare earth magnet processing, these restrictions have created supply chain bottlenecks, prompting India to reassess its EV policy, accelerate domestic production, and explore recycling and alternative sourcing. This report examines the implications for India’s EV ambitions, government responses, automaker challenges, and efforts to build a resilient supply chain.
China’s Export Restrictions
China, which accounts for 70-80% of global rare earth element (REE) production and over 90% of refining capacity, introduced stringent export controls on seven REEs and finished magnets. These controls require export licenses, detailed end-use disclosures, and client declarations ensuring magnets are not used in defense or re-exported to the US. The process has led to significant delays, with clearance times extending to at least 45 days, creating a backlog that has tightened global supply chains. India, which imported over 80% of its 540 tonnes of magnets from China in FY24, has faced acute challenges, with nearly 30 import requests endorsed by the Indian government still awaiting Chinese approval by May 2025.
Must Read: India’s Affordable EVs Drive Mass Adoption in 2025
Impact on India’s EV Sector
Rare earth magnets, particularly neodymium-iron-boron (NdFeB) magnets, are critical for EV motors, power steering, regenerative braking, and other components due to their high torque and efficiency. The restrictions have led to:
- Production Delays: Industry insiders estimate that magnet inventories held by Indian auto component makers were expected to run out by late May or early June 2025, risking production halts. Maruti Suzuki, for instance, adjusted its e-VITARA production schedule, targeting 8,000 units by September 2025 instead of the planned 26,000 due to magnet shortages.
- Price Hikes: Analysts predict EV price increases of 5-8% due to supply constraints, particularly impacting cost-sensitive segments like electric two-wheelers. This could squeeze margins for automakers and slow consumer adoption in a price-sensitive market.
- Supply Chain Vulnerability: India’s reliance on China for 93% of its permanent magnet imports in FY25 (53,700 tonnes, up from 28,700 tonnes in FY24) highlights a critical dependency. The lack of immediate alternatives has exposed the fragility of India’s EV supply chain.
High-Level Government Discussions
The Indian government has responded with urgency, recognizing the strategic and economic risks posed by China’s restrictions:
- Policy Rethink: High-level discussions within the government have focused on diversifying EV technologies to reduce reliance on battery electric vehicles (BEVs) that depend heavily on rare earth magnets and lithium-ion batteries. There is a push to explore hybrid vehicles, which require fewer magnets, as a transitional strategy. A top official described the restrictions as a “wake-up call,” prompting a reassessment of India’s EV policy to balance geopolitical risks and the local internal combustion engine (ICE) ecosystem.
- Diplomatic Efforts: The Indian auto industry, through the Society of Indian Automobile Manufacturers (SIAM), has urged the government to expedite import approvals via diplomatic channels. In May 2025, SIAM met with commerce ministry officials, warning that production could halt by early June without intervention. A high-level delegation of 40-50 auto executives was planned to visit China to negotiate faster import clearances, though approvals from China’s Ministry of Commerce were still pending as of June 2025.
- National Critical Minerals Mission: Launched in April 2025 with a ₹16,300 crore budget over seven years, this mission aims to bolster domestic rare earth exploration and refining. The government is also drafting a ₹1,345 crore scheme to incentivize local magnet production, offering fiscal support and public-private partnerships to companies like Mahindra & Mahindra, Uno Minda, and Sona BLW Precision Forgings.
Automaker Perspectives
Leading Indian automakers like Tata Motors and Mahindra & Mahindra are grappling with immediate and long-term challenges:
- Tata Motors: Shailesh Chandra, MD of Tata Motors Passenger Vehicles, emphasized a multi-pronged approach. In the short term, Tata is adjusting inventories and exploring alternative suppliers in countries like Australia, Vietnam, and Japan. Mid-term strategies include reducing the rare earth content in components, while long-term plans focus on developing magnet-free motors like induction motors, despite their lower efficiency.
- Mahindra & Mahindra: A Mahindra spokesperson noted that the company currently has sufficient inventory to meet production needs but is actively de-risking its supply chain. This includes sourcing assembled parts, exploring alternative materials, and collaborating with SIAM and the government to expedite certifications. Mahindra is also keen to invest in domestic magnet production facilities under the proposed ₹1,345 crore scheme, aligning with its expanding electric SUV portfolio.
- Bajaj Auto and TVS Motor: Two-wheeler giants have raised alarms about production disruptions. Bajaj Auto’s Executive Director, Rakesh Sharma, described the restrictions as a “dark cloud” over the EV industry, predicting output halts by July 2025 without resolution. TVS Motor’s MD, Sudarshan Venu, echoed these concerns, highlighting potential price hikes and the urgent need for localized supply chains.
Push for Local Supply Chains
India holds the world’s third-largest rare earth reserves (6.9 million tonnes), yet its production is limited to 2,900 tonnes annually, ranking seventh globally. The government and industry are taking steps to address this:
- Domestic Production: The ₹1,345 crore scheme aims to produce 4,000 tonnes of neodymium- and praseodymium-based magnets over seven years, with India Rare Earths Limited (IREL) supplying raw materials. A Hyderabad-based oxide-to-magnet plant under the Midwest Group is set to begin operations in 2026 with an initial capacity of 500 tonnes per annum, scaling to 5,000 tonnes by 2030.
- Private Sector Engagement: Companies like NALCO, which extracts rare earths like scandium and yttrium from bauxite residue, and Vedanta, with its diversified mineral portfolio, are poised to benefit. The government is opening REE exploration to private players, encouraging investment in mining and refining.
- Alternative Sourcing: India is exploring imports from countries like Australia, Vietnam, Mongolia, Myanmar, and Sri Lanka. Partnerships with mineral-rich nations like Argentina and Brazil are also under consideration to diversify supply chains.
Must Read: Tesla India Showroom Opens in Mumbai: Revolutionizing EVs in India
Recycling Efforts
Recycling is emerging as a short-term solution to reduce import dependency:
- Attero Recycling: CEO Nitin Gupta claims India can achieve 80-90% of its magnet demand through recycling if 90% of end-of-life products are processed. Attero extracts neodymium from magnets with over 97% purity, surpassing global benchmarks. The company advocates for India to become a global recycling hub, leveraging its large e-waste sector.
- Policy Support: The government is considering incentives for rare earth recycling under the National Critical Minerals Mission. This includes formalizing the e-waste sector and investing in infrastructure to extract magnets from end-of-life EVs and electronics.
- Challenges: Current recycling volumes are low, and logistics remain complex. However, experts like Ravi Bhatia from JATO Dynamics India suggest that recycling could bridge the gap while domestic mining and refining capacities are developed over the next decade.
Negotiations for Favorable Import Terms
India’s efforts to secure imports include:
- Diplomatic Push: The Indian embassy in Beijing is engaging with Chinese authorities to clear pending shipments. The government is streamlining its own approval processes, with the Directorate General of Foreign Trade (DGFT) issuing 30 end-use certificates to assure compliance with China’s export rules.
- Challenges with Chinese Regulations: China’s insistence on sourcing entire motor assemblies rather than standalone magnets complicates matters, as it requires automakers to redesign vehicles and obtain new homologation approvals, potentially reducing domestic value addition under India’s Production-Linked Incentive (PLI) scheme.
- Industry Advocacy: SIAM and the Automotive Component Manufacturers Association of India (ACMA) are working with the Ministry of Heavy Industries to simplify regulatory barriers and secure urgent shipments. Ernst & Young has been engaged to assess local magnet production timelines.
Must Read: Rahul Chaudhary’s Voltic Automotive Accelerates India’s EV Growth with ‘Desh Ki Takat’ Vision
Long-Term Implications
China’s restrictions have exposed the fragility of India’s EV supply chain, prompting a strategic shift toward self-reliance. While recycling and alternative sourcing offer short-term relief, building a domestic rare earth ecosystem will take 7-10 years due to the high capital costs (₹4,000-8,000 crore per mine) and technical complexity of refining. The government’s ₹1,345 crore scheme and the National Critical Minerals Mission are critical steps, but sustained investment, public-private partnerships, and international alliances will be essential to reduce dependence on China.
Conclusion
China’s rare earth magnet restrictions have disrupted India’s EV ambitions, risking production delays and price hikes. The government is responding with a multi-pronged strategy, including diplomatic negotiations, a ₹1,345 crore incentive scheme, and investments in recycling and domestic production. Automakers like Tata and Mahindra are adapting through inventory management, alternative sourcing, and advocacy for localized supply chains. While short-term challenges persist, these efforts could position India as a significant player in the global rare earth market, supporting its EV and clean energy goals.