Disruption of rare earth magnet supplies beyond 30 days can impact vehicle production in India: Report

A disruption in rare earth magnet supplies lasting beyond a month can impact production of passenger vehicles, including electric models, weighing on the domestic automobile industry's growth momentum, a report on Tuesday said.

Rare earth magnets, low in cost but critical in function, could emerge as a key supply-side risk for India's automotive sector if China's export restrictions and delays in shipment clearances persist, Crisil Ratings said in a statement.

"The supply squeeze comes just as the auto sector is preparing for aggressive EV rollouts. Over a dozen new electric models are planned for launch, most built on PMSM platforms," Crisil Ratings Senior Director Anuj Sethi said.

While most automakers currently have 4-6 weeks of inventory, prolonged delays could start affecting vehicle production, with EV models facing deferrals or rescheduling from July 2025, he added.

A broader impact on two-wheelers and ICE PVs may follow if the supply bottlenecks persist for an extended period, Sethi said.

"The shortage of rare earth magnets is forcing automakers to reassess supply-chain strategies. Despite contributing less than 5 per cent of a vehicle's cost, these magnets are indispensable for EV motors and electric steering systems," said Crisil Ratings Director Poonam Upadhyay.

Automakers are actively engaging with alternative suppliers in countries such as Vietnam, Indonesia, Japan, Australia, and the US, while also optimising existing inventories, she noted.

"With applications across EVs and ICE vehicles, a prolonged supply squeeze could disrupt production of PVs and 2Ws, making this low-cost component a potential high-impact bottleneck for the sector," she said.

Rare earth magnets are integral to Permanent Magnet Synchronous Motors (PMSMs) used in EVs for their high torque, energy efficiency and compact size.

Hybrids also depend on them for efficient propulsion. In internal combustion engine (ICE) vehicles, the use of rare earth magnets is largely limited to electric power steering and other motorised systems.

In April this year, China, the world's dominant exporter of rare earth magnets, 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.

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.

India, which sourced over 80 per cent of its 540 tonnes magnet imports from China last fiscal, 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.

During the pandemic, rare earth magnet supplies remained stable, unlike semiconductors, reinforcing reliance on just-in-time inventory without building strategic buffers.

However, while semiconductors have a globally diversified supply base, over 90 per cent of rare earth magnet processing is concentrated in China, with limited short-term alternatives.

Recognising the risk, the government and automakers are taking action on two fronts, Crisil said.

In the short term, the focus is on building strategic inventories, tapping alternative suppliers and accelerating domestic assembly under Production Linked Incentive schemes.

For the long term, reducing import dependency will hinge on fast-tracking rare earth exploration, building local production capacity and investing in recycling infrastructure, Crisil stated.