TVS flags rare earth magnet threat even as profit surges on scooter sales

Mint

31-07-2025

TVS Motor Company Ltd flagged the threat of curbs on rare earth magnets, imported majorly from China, prompting India's third-largest two-wheeler maker by volume to look for other sources for the critical components to ensure its production continues uninterrupted.
To be sure, TVS shared a less dire outlook in its post-earnings commentary on rare earth magnets on Thursday, saying it was able to manage production, unlike Bajaj Auto Ltd, which has warned that it can have severe production cuts starting from August if China does not ease restrictions on export of these key inputs used in electric vehicles, smartphones and fighter jets, among others.
In Bajaj Auto's earnings call on 29 May for the January-March period, the company announced that production could halt soon if the rare earth magnet crisis was not resolved quickly. Rajiv Bajaj, managing director at the country's second-largest motorcycle manufacturer, recently said that August could be a zero month, meaning complete production halt, for the company's electric scooter Chetak.
India's largest two-wheeler company Hero MotoCorp has not shared a commentary on the issue, with its results scheduled to be announced on 6 August, after which investors are expected to raise the issue.
TVS told analysts and investors that it is exploring other options to mitigate the rare earth magnet crisis, which seems unlikely to be resolved any time soon as China continues to restrict exports of the key component.
During the April-June period, the company saw its consolidated profits zoom 33% from a year ago to ₹ 642 crore, as its margins expanded by nearly a 100 basis points in the last one year on the back of robust growth in revenue and accrual of production-linked incentive scheme.
Revenue during the first three months of the current fiscal year grew by 18% to ₹ 12,249 crore, driven by a surge in scooter sales. Total bike, scooter and moped sales rose 16% to 1.23 million, with sales of scooters growing 19% to 499,000 units, from 418,000 units in the year-ago period.
Shares on TVS settled about 0.6% higher at ₹ 2,809 apiece on the NSE on Thursday.
While the company expects the second half of the year to have even better growth, investors questioned the management on the possibility of production disruption due to the rare earth magnet supply crisis.
'At this point, we are managing day-to-day production. There are alternatives but the lead times are high,' K.N. Radhakrishnan, director and chief executive at TVS, said during the post-earnings call.
Although the company did not specify what alternatives it is currently exploring, other players are using rare earth free motors and light rare earth motors to avert disruption. TVS' electric vehicle segment rivals Ola Electric and Ather Energy have explored these technologies. Motors use rare earths for efficient performance. However, automakers are recently using ferrite-based magnets and light rare earth magnets in motors, which haven't been restricted by China and have a more diversified supply chain than heavy rare earth magnets.
Analysts noted that TVS continues to outperform the industry and post good margins, which is helping improve its profitability.
'In an otherwise tepid quarter for the 2W industry, TVS saw strong volume growth in Q1FY26, with highest-ever quarterly volumes. Performance was driven by growth across its scooters and motorcycle segments. While the motorcycle segment has not done very well for the industry in recent times, TVS has bucked the trend with consistent growth,' Mrunmayee Jogalekar, auto research analyst at Asit C Mehta Investment Interrmediates Ltd, said.
Starting 4 April, China started restricting exports of key rare earth magnets that are used in the motors of electric vehicles and other components of ICE (internal combustion engine) vehicles. More than 30 applications of Indian suppliers have been sent to the Chinese government, which has not approved any shipment since the last three months.
Automakers are now looking at importing full products to offset any impact on production to ensure operations are not halted.
While Bajaj had raised an alarm, TVS remains optimistic about production continuity and said that good growth in the EV market will continue. In the first three months of the current fiscal, TVS was the largest electric scooter seller, selling nearly 70,000 units, 35% higher from a year ago.
'There is an increasing trend of scooterization and premiumization in the motorcycle market,' Radhakrishnan.
On investments and new products, TVS said it will continue its investments in Norton as the premium British motorcycle brand readies itself to launch new products by the end of this financial year. TVS acquired Norton in 2020 for £16 million.
Radhakrishnan said that the products will start rolling out in Europe by first quarter of FY27. Capital expenditure in the current financial year will be around ₹ 1,600 crore.