
Chinese motors instead of Chinese magnets? Yes, but there's a problem
Passing on the duty burden on imported motors will raise vehicle prices, and manufacturers will miss out on production incentives with strict local content rules, the Society of Indian Automobile Manufacturers (Siam) wrote to the government. Production could come to a complete halt for several models if the motors aren't available.
'In the current scenario when there is a restriction on import of standalone magnets, full assembly/allied components/sub-assemblies will have to be imported which shall attract a basic customs duty (BCD) of 15% leading to increase in cost of the vehicles," the lobby of automakers wrote to the heavy industries ministry on 27 June. Mint has seen a copy of the letter.
Electric vehicles are powered by traction motors connected to a battery, while sensors, telemetry and other electronic functions of all vehicles use rare earth magnets. India's automakers have so far failed to meet Chinese officials to quicken the approval process, highlighting the external dependence for these critical items, as well as the vulnerability of global supply chains.
Local woes
Siam also requested easier localization norms in production-linked incentive schemes and PM E-Drive, which will allow them to use imported material in vehicles without being disqualified for incentives. 'Applicants under both the PM-E Drive Scheme and Auto PLI Scheme should be granted temporary exemption/relaxation from the compliance requirements under PMP (phased manufacturing programme) timelines and DVA (domestic value addition) thresholds, specifically for components/aggregates affected by the REM supply crisis," the industry body wrote, urging the heavy industries ministry to request the finance ministry for a maximum of 7.5% BCD on motors.
Siam counts nearly all major automakers such as Maruti Suzuki India Ltd, Hyundai Motor India Ltd, Tata Motors Ltd, Bajaj Auto Ltd, Mahindra and Mahindra Ltd, and TVS Motor Co. as its members. Queries emailed to the industry body remained unanswered.
"If China relaxes its restrictions, then we will return to normal; but if it doesn't, there are no quick solutions," S.B. Mohanty, acting chairman and managing director of IREL Ltd, the state-owned rare earths company, told Mint in a recent interview.
Subsidy scheme
New Delhi will decide on a scheme to subsidize domestic production of rare earth magnets, heavy industries minister H.D. Kumaraswamy said on 24 June, adding stakeholder consultations are underway.
Experts fear that any increase in cost in the current situation may be passed on to consumers as margins in the automobile industry are thin.
As per Harshvardhan Sharma, group head for auto tech and innovation at Nomura Research Institute Consulting & Solutions India, the difference in duties, combined with logistics and markup by motor makers, can increase the landed cost of motors by 18-25%. 'Any increase in motor prices — due to full motor imports — cascades directly into final vehicle pricing unless offset by subsidies or economies of scale," Sharma notes.
The most critical component using the rare earth magnet is the traction motors, the heart of an electric vehicle. In multiple consultations with the government over the last few months, manufacturers have conveyed that production lines will be threatened if the situation is not resolved soon. Bajaj Auto leadership warned during its post results earnings call on 29 May that production output will come under threat starting from July.
Chinese grip
Srihari Mulgund, partner at EY Parthenon, a consultancy, said that relying on imports for motors will give China a control on the market dynamics.
'China has capacity to meet India's demand and for its low-voltage motors used in two-wheelers and three-wheelers, India can emerge as a key player. As this industry already works on wafer thin margins, any cost increase is likely to be passed through, which will have a bearing on the demand environment," he said.
In 2025, Maruti Suzuki, Mahindra, Tata Motors and Hyundai have already raised prices by 1-4%. At a time when country's carmakers are reporting a weak market, experts fear the impact any price hike can have particularly when the festive season is set to start from the next month.
'Along with the cost increase, automakers will have to deal with compliance cost increase as well due to the fact new motors will have to be homologated with the authorities," Mulgund added.
Slow crawl
According to industry estimates, India's car market will see a 1-2% growth in FY26. In 2025, the market grew by 2% to 4.3 million units.
As per two people in the know, Chinese vendors told companies looking to import rare earth magnets to buy the motors directly instead of buying the raw material required to make them locally.
'If motors begin to be imported from China, it will put our localization efforts under threat and make firms more dependent on China," one of the persons mentioned above said. Increasing dependence on China, especially in the manufacturing of clean fuel vehicles, will also pose a hurdle to the Make in India initiative.
Nomura Research Institute's estimates suggest that in electric two-wheelers, the traction motor forms 13-18% of bill of materials cost. In passenger EVs, the motor contributes 8-10%, with batteries making up 35-40%.
With Chinese manufacturers looking to target higher-value components, experts warn that the latest crisis has given its companies an opportunity.
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