China's rare-earth curbs hit Indian auto industry

India Today

4 hours ago

(NOTE: This article was originally published in the India Today issue dated June 16, 2025)The US-China tariff war may have ostensibly eased into a softer phase of negotiations, but one stealth missile fired by China in its early days has only hit home now. The potential fallout is global, and India is very much within range. On April 4, two days after President Donald Trump's tariff blitz, Beijing had hit back by calling halt to its export of rare earth magnets. China controls over 90 per cent of the global processing capacity for this key component, used in everything from automobiles and fighter jets to robotics and home appliances. As it leverages this monopoly by slow-rolling licences, stockpiles everywhere are falling as rapidly as alarm is rising.advertisementIndia imported 870 tonnes of these magnets worth over Rs 300 crore in FY25, mostly from China, as domestic production capacity remains negligible. Now, though, Chinese exporters must themselves obtain government licences, furnishing detailed end-use certificates from Indian buyers, before shipping. The certificates need to be signed by India's foreign ministry and the Chinese embassy, apparently to ensure the end-use is not military. This knot has held up clearances and shipments. Industry sources say over 30 applications approved in India are already pending final clearance in China.
AUTO SECTOR IN A BIND
It has been a month since China put this squeeze on exports, and whatever inventory Indian auto companies had as a buffer is fast getting depleted and may dry up by June-end. Rare earth magnets, particularly neodymium-iron-boron ones, are essential in electric as well as conventional vehicles—they go into motors, steering, brakes, wipers and audio equipment. With no clarity on normalisation of imports, manufacturers are staring at a significant cut in production.advertisementIndustry groups are in some panic. A joint delegation comprising representatives from the Society of Indian Automobile Manufacturers and the Automotive Component Manufacturers Association is set to meet senior Chinese government officials to accelerate approvals and restore supply.'For some of these EV components, the whole supply chain resides in China...if this doesn't change, the entire Indian EV industry will grind to a halt,' Rajiv Bajaj, chairman, Bajaj Auto, had warned in late April. On June 4, Rajan Wadhera, former president of Mahindra & Mahindra Auto and of industry body SIAM, wrote to Union heavy industries minister H.D. Kumaraswamy about the need to '...adopt a diversified, multi-pathway approach' since these magnets are 'indispensable to EVs', nearly 3 kg being needed per vehicle, against 100 grams in a conventional vehicle. 'The ban will begin to impact production by June-July,' says Sudarshan Venu, MD, TVS Motor. 'We're actively exploring ways to de-risk the situation, but there could be cost increases down the line.'A rare earth magnet, made from one of the 17 rare earth elements (lanthanide series, scandium, yttrium), is far superior to other industrial magnets. Rare earth metals aren't 'rare' as such, and are relatively abundant in the Earth's crust. However, they aren't found in pure concentrations, making it economically challenging to mine them.advertisementCHINESE DOMINANCEChina produces 140,000 tonnes of rare earth metals annually, with the US a distant second, at 38,000 tonnes. In comparison, India's rare earths production capacity, mostly through state-owned IREL (formerly Indian Rare Earths Ltd), is just over 5,000 tonnes.With the new restrictions, several consignments are reportedly stranded at Chinese ports. Gaurav Vaangal, principal analyst with S&P Global in India, says the impact of China's clampdown can be mitigated by 'optimising the product mix to ensure production lines remain operational'. That said, continuous monitoring is essential, as the production line could experience significant disruptions—initially affecting EV components and later extending to ICE (internal combustion engine) parts, potentially leading to serious production challenges, he concedes. That challenge may hit the accelerator before solutions catch up.Subscribe to India Today MagazineMust Watch