Indian EV Industry Report: Impact of China's Rare Earth Metal Export Restrictions

Summary

India's electric vehicle (EV) industry is challenged by China's export restrictions on rare earth metals (REMs) and magnets, essential for EV production. With China controlling nearly 90% of the global rare earth magnet supply, these curbs could disrupt Indian EV manufacturing, potentially depleting inventories by mid-2025. This report examines the impact of these restrictions, India's reliance on Chinese REMs, domestic production limits, and possible crisis mitigation strategies, using recent market insights and industry sentiments for a comprehensive overview.

Electric two-wheelers are vulnerable due to their dependence on neodymium-iron-boron (NdFeB) magnets. | Image: Shutterstock

Background

• China’s Export Curbs: In April 2025, China imposed export controls on seven rare earth metals and related items, requiring exporters to obtain licenses. This move was part of broader trade tensions, including retaliatory measures against U.S. tariffs. The restrictions have significantly impacted India, which relies heavily on China for neodymium-praseodymium (NdPr) magnets used in EV traction motors.

  
  

• Global Supply Chain Dynamics: China dominates 90% of the world’s rare earth magnet supply, making it a critical player in the global EV ecosystem. The curbs have led to delays in import approvals, exacerbating supply chain vulnerabilities for Indian manufacturers.

Impact on Indian EV Industry

Immediate Challenges

• Inventory Depletion: Industry leaders, including TVS Motor’s Managing Director Sudarshan Venu, have warned that current inventories of rare earth magnets may run out by June or July 2025, potentially halting EV production.

  
  

• Production Disruptions: Companies like TVS Motors and Bajaj Auto have highlighted the risk of production halts, particularly for EVs, which rely heavily on REM-based components like traction motors. Delays in securing import licenses have compounded the issue.

  
  

• Rising Costs: The supply crunch is expected to increase input costs for Indian automakers, particularly in high-tech EV segments. This could lead to higher vehicle prices, potentially dampening consumer demand.

  
  

• Strained India-China Relations: Ongoing geopolitical tensions and complex trade dynamics have delayed import approvals, further complicating the situation for Indian manufacturers.

Dependency on Chinese Imports

• Critical Component Reliance: Rare earth magnets, particularly NdPr-based magnets, are essential for EV traction motors and other components. India imports the majority of these magnets from China due to limited domestic production capacity.

  
  

• Lack of Domestic Alternatives: Despite India holding the fifth-largest reserves of rare earth metals globally, its production is minimal. IREL (India) Ltd produces only 1,500 tonnes of NdPr annually and lacks the infrastructure to manufacture downstream magnet components at scale.

Domestic Production Limitations

• Underdeveloped Infrastructure: India’s rare earth sector is underdeveloped, with IREL (India) Ltd being the primary producer. The country lacks the technology and facilities to process rare earths into magnets, limiting self-reliance.

  
  

• Low Production Capacity: The annual output of 1,500 tonnes of NdPr is insufficient to meet the growing demand from India’s EV sector, which is expanding rapidly due to government incentives and rising consumer adoption.

  
  

• Policy and Investment Gaps: While India has made strides in promoting domestic manufacturing through initiatives like Atmanirbhar Bharat, the rare earth sector has not seen significant investment or policy focus, leaving it vulnerable to external supply shocks.

Industry Sentiment and Market Impact

• Industry Warnings: Major players like TVS Motors and Bajaj Auto have publicly expressed concerns about the impending supply crunch. Industry groups are urging government intervention to secure alternative supply chains or expedite import approvals.

  
  

• Market Reactions: The uncertainty has led to cautious sentiment in the Indian stock market, with potential downward pressure on EV-related stocks. Meanwhile, global markets are also reacting to broader trade uncertainties, with Asian markets declining and gold prices rising as a safe-haven asset.

  
  

• Social Media Buzz: Posts on X reflect growing concern among industry observers, with some speculating that Indian EV production could cease entirely by July 2025 without swift action. However, these claims remain unverified and should be treated as inconclusive.

Strategic Recommendations

To mitigate the impact of China’s export restrictions and build a resilient EV ecosystem, India can consider the following strategies:

1.Diversify Supply Chains:

Explore partnerships with countries like Australia, Canada, or the United States, which have rare earth reserves and processing capabilities. Recent U.S.-China trade truces may ease export permits for U.S. customers, offering potential collaboration opportunities.

Encourage joint ventures with global magnet manufacturers to establish local production facilities.

2.Invest in Domestic Production:

Increase funding for IREL (India) Ltd to expand NdPr production and develop downstream magnet manufacturing capabilities.

Implement policy incentives, such as tax breaks or subsidies, to attract private investment in rare earth processing infrastructure.

3.Government Intervention:

Expedite diplomatic efforts to negotiate with China for relaxed export controls or priority licensing for Indian importers.

Develop a national rare earth strategy under the Atmanirbhar Bharat framework to prioritize self-reliance in critical minerals.

4.Research and Innovation:

Fund research into alternative materials for EV motors that reduce reliance on rare earth magnets, such as ferrite-based magnets or magnet-free motor designs.

Collaborate with academic institutions and global tech firms to innovate in recycling and reusing rare earth materials.

5.Stockpiling and Inventory Management:

Encourage manufacturers to build strategic reserves of rare earth magnets to buffer against future supply disruptions.

Work with industry bodies to create a centralized inventory management system for critical EV components.

Long-Term Outlook

The current crisis underscores the fragility of India’s EV supply chain and its over-reliance on Chinese REMs. While short-term disruptions are likely, strategic investments in domestic production and global partnerships could position India as a more resilient player in the global EV market. The government’s focus on initiatives like Atmanirbhar Bharat and recent trade agreements, such as the India-UK Free Trade Agreement, signal a positive direction for strengthening domestic industries. However, immediate action is critical to prevent production halts and maintain India’s EV growth trajectory.

Conclusion

China’s rare earth export restrictions pose a significant threat to India’s burgeoning EV industry, with potential production halts looming by mid-2025. The combination of limited domestic production, heavy reliance on Chinese imports, and strained bilateral relations exacerbates the challenge. By diversifying supply chains, investing in domestic capabilities, and pursuing innovative solutions, India can navigate this crisis and emerge stronger. Industry stakeholders and policymakers must act swiftly to ensure the EV sector’s long-term sustainability.