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Rare Earth Roadblock: A Geopolitical Shockwave

Aditya Bhattacharya and Akriti Sharma

The modern vehicles today are heavily relied on rare earth magnets as they play a crucial role in their functioning. There are 17 rare earth elements in the Lanthanide series of metals in the periodic table and rare earth magnets are the strongest permanent magnets made from one of these 17 rare earth elements.  Neodymium (Nd-Fe-B) and Samarium Cobalt (SmCo) are the two most common rare earth magnets. They differ from the regular magnets mainly composed of Ferrite, a ceramic material composed mainly of iron (III) oxide.

Despite their name “rare earth”, they are not rare and are relatively abundant in the Earth’s crust. As they are found in concentrated amounts often mixed with other metals, making their mining and extraction is very complex and challenging.

Rare earth magnets are essential components used in Permanent Magnet Synchronous Motors (PMSMs) in the automotive sector. They are widely used in electric as well as hybrid vehicles due to their high torque, compact size and energy efficiency. These magnets are also found in the internal combustion engine vehicles and are used in systems like electric power steering and other auxiliary components.

Although the importance of rare earth metals is often overlooked by the mainstream public, they are not only vital for the automobile industry but also to other sectors like electronics, clean energy and defence.

The New Chinese Export Regime & Its Impact on the Automotive Industry in India:

China is the largest producer of rare earth metals with over 90% of the refining capacity in the world. This gives China a strategic leverage against the countries that depend on these materials or do not align with its geopolitical interests. As the refining capacity is heavily controlled by China, any disruption in the supply chains of rare earth magnets has immediate consequences on the automotive industry of various countries.

Today, India is facing a crisis following the recent restrictions imposed by the Chinese Government in the export permit system for medium and heavy rare earth metals, alloys, magnets, and related products. On 4th April 2025, the Chinese government issued an order imposing restrictions to stop the diversion of magnets to defense and weapon requirements, and mandated that the exporters are required to obtain a license based on the End User certificate (EUC). This further requires the approval from the DGFT and the Ministry of External Affairs along with the endorsement by the Chinese Embassy in India. Through this certificate, the exporters are required to make certain guarantees that these items will not be used for storing, manufacturing, producing or processing weapons of mass destruction. The EUC is then sent to the provincial government in China from where the exporter will produce and export these items and finally goes to China’s Ministry of Commerce for the final approval.

Following this new regime adopted by China, approximately 40-50 executives in India from the Original Equipment Manufacturers (OEMs) as well as the Component firms have received visas but still awaiting approval from the China’s Ministry of Commerce for a meeting.

However, a broader geopolitical narrative of the current crisis indicates a more strategic motive as China’s imposition of restrictions comes in response to its trade tensions with the U.S. and Trump’s imposition of tariffs on Chinese goods. China has now entered a Bilateral Treaty with the U.S. under which it will supply rare earth magnets to the U.S. The European automotive manufacturers have also received approval for the supply of rare earth magnets, yet China is still restricting its access for India.

In the last fiscal year, India sourced over 80% of its 540 tonnes of magnet imports from China. The domestic auto industry in India is now facing a growing risk as these rare magnets form an integral part of the manufacturing of EVs in India and the disruption in its supply chain has slowed down the production of these vehicles, thereby further delaying India’s plan to localise the manufacturing of EVs.

Leading car manufacturing companies are seeking assistance from their respective parent companies as the shortage of the rare magnets are heavily affecting the automobile industry in India. The production of Maruti Suzuki’s e-Vitara which was earlier targeted for 26,000-27,000 units in the first half of FY-26, has now been slowed down to below 10,000 units due to the shortage of rare earth magnets. This shortage will further lead to an increase in the cost of manufacturing and the components using these rare earth magnets will now become more expensive. In addition to this, the restrictions imposed by China is also affecting the audio electronics sector and the fast-growing wearables and hearables market in India as approximately 21,000 jobs in the electronics sector in India is at risk.

In order to mitigate the current crisis, the Indian Government and the automakers have decided to adopt a twin-pronged strategy that will include short-term as well as long-term measures. In the long run, India is aiming to adopt various measures focussing on reducing the import dependency by accelerating its efforts to explore and mine the rare earth minerals, creating local processing capabilities and introducing recycling initiatives. The short-term measures mostly include strategic inventories and tapping alternative suppliers wherein the automakers will try to diversify the supply chains and at the same time prioritize conserving the rare earth magnets to avoid immediate shortage in case of disruptions in the supply chains. As a part of the short-term measure, India is also launching a Production-linked Incentive (PLI) Scheme worth between ₹3,500 to ₹5,000 crore, which is expected to be notified in the next few days. This scheme aims to promote the domestic manufacturing of rare earth minerals and derived magnets and is a crucial step towards reducing India’s dependence on China.

The Centre for Materials for Electronics Technology (C-MET), a research unit under Meity, has also signed a transfer of technology agreement with a firm based in Ahmedabad to produce rare earth magnets. Additionally, one of India’s biggest importers of rare earth magnets also plans to locally manufacture the components used in electric vehicles.

However, the Government of India recently expressed concerns about the need to make the rare earth magnets at a commercially competitive rate as the challenge lies in making them economically viable for large-scale production despite having existing technology.

Thus, although India is now introducing urgent measures to incentivise the domestic production of rare earth magnets, China’s restrictions has undoubtedly decelerated the automotive industry and severely impacted the production of EVs in India. But at the same time, this critical situation also provides an opportunity for India to strengthen its ‘Make in India’ and “Atmanirbhar Bharat’ initiative and transform itself from an exporter of rare earth magnets to self-reliance by mining and processing these minerals within its own borders.

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