In April, China implemented export restrictions on seven rare earth elements and finished magnets, requiring exporters to obtain licenses. However, requests for imports are still awaiting approval from Chinese authorities, and shipments have yet to arrive.
A delegation of auto industry representatives is preparing for a visit to China, aiming to speed up the import of rare earth magnets for Indian companies, according to industry sources. Roughly 40 to 50 executives have received visa approvals but are still waiting for the green light from the Chinese commerce ministry to hold discussions on the matter. The domestic auto industry is compelled to take action as the Chinese government imposed restrictions on the export of rare earth elements and related magnets starting April 4. China now requires special export licenses for seven rare earth elements and corresponding magnets, a move that has significant repercussions.
The country dominates over 90 per cent of the global processing capacity for these magnets, which are essential across various sectors, including automotive, home appliances, and clean energy.
Potential production challenges
With the uncertainty surrounding approvals, the Indian automobile sector is facing potential production challenges, particularly concerning electric vehicles. Maruti Suzuki India, the nation’s largest car manufacturer, is adjusting its production plans for the upcoming e-VITARA model due to a shortage of rare earth magnets, according to industry sources.
The company aims to produce around 8,000 units of this model by September, far less than the previously planned 26,000 units during that period. Nevertheless, Maruti plans to compensate for this production shortfall in subsequent months, targeting around 67,000 units for the fiscal year.
The domestic auto industry has also reached out to the government for support in hastening approvals from China for importing rare earth magnets.
What are rare earth magnets
These critical materials, which include samarium, gadolinium, terbium, dysprosium, and lutetium, are vital for electric motors, braking systems, smartphones, and even missile technology. Rare earth magnets are crucial for the high torque and energy efficiency of permanent magnet synchronous motors (PMSMs) used in electric vehicles, while hybrids rely on them for effective propulsion. In internal combustion engine (ICE) vehicles, their usage is mainly confined to electric power steering and similar motorized systems.
Significant supply-side risk
Crisil Ratings has pointed out that rare earth magnets, while low in cost, are critical in function and could emerge as a significant supply-side risk for India’s automotive sector if China’s export restrictions and delays in shipments continue. Currently, most automakers have 4 to 6 weeks of inventory, but any prolonged delays could impact vehicle production, with EV models facing potential deferments or rescheduling starting in July 2025. If these supply bottlenecks persist for an extended period, a wider impact on two-wheelers and ICE passenger vehicles could also be seen.
Export restrictions
In April, China—being the world’s primary exporter of rare earth magnets—enforced export restrictions on seven rare earth elements and finished magnets, mandating export licenses. The updated regulations require detailed end-use disclosures and client confirmations, including assurances that the products won’t be utilised for defense purposes or resold in the US.
India, which relied on China for over 80 per cent of its 540 tonnes of magnet imports last fiscal year, is beginning to feel the effects of these restrictions. By May 2025, nearly 30 import requests from Indian firms received endorsement from the Indian government, but they are still pending approval from Chinese authorities, and shipments have not yet arrived.