EV motors use rare earth elements like dysprosium and terbium to maintain efficiency at high operating temperatures. E-2Ws have shorter lead time for design changes (2-3 months), but PVs and buses, where powertrain performance and space constraints are more stringent, would require a longer gestation period of 6-12 months for a complete motor redesign.
Industry executives indicate that current inventories may last only a few weeks to a month. According to Anuj Sethi, senior director, Crisil Ratings, “The supply squeeze comes just as the auto sector is preparing for aggressive EV rollouts… prolonged delays could start affecting vehicle production, with EV models facing deferrals or rescheduling from July 2025.” A broader impact on passenger vehicles (PVs) and two-wheelers (2W) could follow if the bottlenecks persist. Maruti Suzuki, for instance, reportedly plans to cut production of its debut electric vehicle, the e-Vitara, due to these challenges. Bajaj Auto’s Executive Director, Rakesh Sharma, warned that July production could be “seriously impaired” without relief.
Vulnerability and strategic response
Unlike semiconductors, which have a diversified global supply base, over 90% of rare earth magnet processing is concentrated in China, leaving limited short-term alternatives. Poonam Upadhyay, Director, Crisil Ratings, notes that while these magnets contribute less than 5% to a vehicle’s cost, they are “indispensable.” Automakers like Mahindra & Mahindra are actively de-risking their supply chains by exploring alternative suppliers in countries such as Vietnam, Indonesia, Japan, Australia, and the US, and optimizing existing inventories.
Both the Indian government and the automotive industry are addressing the crisis on two fronts. Short-term efforts focus on building strategic inventories, tapping alternative suppliers, and accelerating domestic assembly under Production Linked Incentive (PLI) schemes. Long-term strategies involve fast-tracking rare earth exploration in India, building local production capacity, and investing in recycling infrastructure to reduce import dependency.
The situation remains dynamic, with Indian auto industry participants engaging with the Ministry of External Affairs and relevant Chinese ministries to secure interim relief and fast-track approvals. The pace of China’s export approvals for these critical magnets remains the immediate monitorable for the Indian automotive sector.