Shortage of rare earth magnets can decelerate India's automotive ride: Crisil

The ongoing shortage of rare earth magnets can slow down India's automotive ride. The rare earth magnets that are low in cost but critical in functionality, especially for electric vehicles as well as for the conventional internal combustion engine-propelled automobiles, could emerge as a key supply-side risk for the country's automotive sector if China's export restrictions and delays in shipments clearances persist.

A report by Crisil Ratings has stated that a disruption lasting more than a month in the rare earth magnet supply chain can already impact electric vehicle launches, affect production and weigh on the Indian auto sector's overall growth momentum. This forecast comes at a time when the number of Indian companies waiting for rare earth magnet procurement licenses from China has nearly doubled in two weeks. The number of companies in the waitlist has increased to 21 in two weeks from 11, claims a report. These companies include major players such as Bosch India, Marelli Powertrain India, Mahle Electric Drives India, TVS Motor and Uno Minda.

The rare earth magnets are integral to permanent magnet synchronous motors (PMSM), which are heavily used in electric vehicles for their high torque, energy efficiency and compact size. Hybrid vehicles also depend on them for efficient propulsion. Besides that, the rare earth magnets are used in ICE vehicles for electric power steering and other motorised systems.

In April this year, China, which dominates 90 per cent of the global rare earth magnet market, imposed export restrictions on seven rare earth elements and finished magnets, mandating export licences. The revised framework demands detailed end-use disclosures and client declarations, including confirmation that the products will not be used in defence or re-exported to the US. This move came on the back of the US-China trade tensions.

Speaking about the crisis, Crisil said that with the clearance process taking at least 45 days, this added scrutiny has significantly delayed approvals. "And the growing backlog has further slowed clearances, tightening global supply chains," says the report. It also stated that India, which sourced more than 80 per cent of its 540 tonne magnet imports from China in FY25, has started to feel the impact. "By end-May 2025, nearly 30 import requests from Indian companies were endorsed by the Indian government, but none have yet been approved by the Chinese authorities, and no shipments have arrived," Crisil claimed.

Rare earth magnet crisis could soften Indian auto industry's growth momentum

In the current financial year (FY26), Indian passenger vehicle market volumes are expected to grow two to four per cent, while electric passenger vehicles could rise 35-40 per cent, albeit on a low base. Electric two-wheelers could grow by 27 per cent, outpacing overall two-wheeler growth of about 10 per cent. However, if the rare earth magnet supply chain crisis persists, it could soften the momentum, especially in the EV segment.

Rare earth magnet crisis: Indian government and OEMs taking a two-pronged approach

Recognising the rare earth magnet supply risk, the Indian government and automakers in the country are taking action on two fronts. In the short term, the focus is on building strategic inventories, tapping alternative suppliers and accelerating domestic assembly under Production Linked Incentive (PLI) schemes. For the long term, the focus is on reducing import dependency, fast-tracking rare earth exploration, building local production capacity and investing in recycling infrastructure.

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