How Does China's Rare Earth Element Export Ban Affect India's Automotive Market?

We are seeing global shortages of 7 rare earth elements and finished magnets thanks to China’s newly imposed restrictions. While China still allows the export of said elements, some new rules need to be followed. These new rules require special export licenses, highly detailed end-user disclosures, and the importing clients’ declarations confirming that the elements or magnets will not be used for defence production or be re-exported to the United States. 

What Elements Are Restricted And What Impact Do They Have?

Out of the 17 recognized rare earth elements, China has imposed restrictions on the following 7:

• Terbium
• Yttrium
• Dysprosium
• Gadolinium
• Lutetium
• Samarium
• Scandium

Furthermore, finished magnets affected are not specifically named, but are any magnet that contains these elements. More specifically, the 2 most recognizable types are:

• Neodymium-iron-boron magnets enhanced with Terbium or Dysprosium
• Samarium-Cobalt magnets

This sounds like fancy names at the moment, but most of these have critical applications. Used either in EV production or defence use, the selection of these elements was carefully done.

How Is The Automotive Industry Affected?

Elements restricted were carefully selected, affecting EV production the most. While not directly used in EVs, these elements are critical for the production of motors used to power these EVs. 
Elements like Dysprosium and Terbium are particularly critical for the automotive industry. Used as additives in Neodymium magnets, these enhance the high-temperature performance of Permanent Magnet Synchronous Motors (PMSMs).

Mainly effects EV production as restricted elements used in PMSMs

While none of the currently restricted elements are used in lithium-ion battery production, Graphite, an element placed under stricter export control by China in 2024, is used to produce anodes in said batteries. So, while not a rare earth, China's broader export controls on critical minerals do impact battery production through graphite. 

Finally, we have Neodymium and Praseodymium, which are also vital to the automotive industry production. While not restricted now, the overall control China has over the supply chain of these materials is making the industry cautious. 

Non EV Cars are also affected. While having a smaller impact on ICE vehicles, components such as Electronic power steering, various sensors like ABS sensors, speakers, engine ignition coils, etc., all use rare earth elements in production. 

Who In The Automotive Industry is Affected?

Most notably, we have Maruti Suzuki, with the production of their upcoming e-Vitara taking a serious hit. Maruti had to reduce near term production targets by nearly two-thirds. The plan to produce 26.5K vehicles between April and September of 2025 has been reduced to only 8200 units. While the company has cited “supply-chain constraints” as the reason behind the target reduction, they still plan to produce over 67K e-Vitaras by March of 2026 by ramping up production.
By increasing production to nearly 440 EVs per day in the second half of the fiscal year, i.e., between October 2025 to March 2026, Maruti Suzuki intends to produce around 58K EVs, rather than the 40.5K in the original plan. 

Rakesh Sharma, Executive Director at Bajaj Auto, publicly raised the alarm about the "dark cloud on the horizon" regarding rare earth magnet supplies from China. While he didn't explicitly state that Bajaj Auto itself has applied, his comments imply that their suppliers (and by extension, Bajaj Auto's operations) are heavily impacted and thus would be involved in the permit application process.

The Society of Indian Automobile Manufacturers, or SIAM, is an apex body representing Indian Automakers. They have reportedly been in urgent discussions with the Indian Government to fast-track the still pending approvals from China, indicating a number of their members are facing issues. 

Finally, we have the Automotive Component Manufacturers Association, or ACMA. Similar to SIAM, they represent the component manufacturers. These manufacturers directly import said elements and/or magnets, and have urged the Indian Government to resolve their pending applications. 

Companies with EV products, like Tata, Mahindra, Ola etc., have not made any public comments; however, with all of them being prominent producers of EVs, they will also be hugely affected. 

Further Impacts

With a shortage of critical production components, especially for EVs, noticeable production delays and even shutdowns can be expected. Despite inventory, we can see disruption in production cycles as soon as July 2025. If the delays persist beyond that, we might see production halts by August 2025. 

This shortage comes at a time when the EV market is booming and EVs are being pushed aggressively. A shortage in stock and dwindling consumer confidence can hamper sale projections. Current projected growth is 35-40% for electric passenger vehicles and 27% for electric two-wheelers in FY26. If this happens, it can lead to price hikes, which in turn affect sales more, causing a chain reaction.

How Much Can We Compensate Domestically? 

Specific To The Automotive Industry

Current estimates show at least 4-6 weeks' worth of inventory, ensuring production stays on track. Anything beyond that can cause graver issues, like the ones discussed above. 

India as a whole

Despite having the world's third largest rare earth element reserves, India imports almost 90% of these elements from China. While, since the 19080s, China has been investing in rare earth mining and refining, India does not have the mining and refining capacity required to fulfill domestic demands. 

In FY25, India’s import of rare earth magnets has gone from around 3600 tonnes annually, with around 90% coming from China, to around 53,700 tonnes, with over 93% of that coming from China. That's a surge of over 15 times. 

India’s mining and refining capabilities pale in comparison. Estimates are for around 2900 tonnes of mining possible per year, with refining much more limited. 
A new oxide-to-magnet plant in Hyderabad is expected to become operational with an initial capacity of 500 tonnes per annum (TPA), projected to increase to 5,000 TPA by 2030. Moreover, the Indian government is also finalizing a Production Linked Incentive (PLI) scheme with a ₹3,000 crore outlay to incentivize domestic rare earth magnet production, aiming for 4,000 tonnes over the next 7-10 years.

As Piyush Goyal, the Union Minister of Commerce and Industry, recently said, “In a way, it's a wake-up call for all those who have become over-reliant on certain geographies. It’s a wake-up call for the whole world that you need trusted partners in your supply chain.”
 

What's The Solution?

While these solutions are not specific to the Automotive industry, it does affect it directly.

Short term

Currently, we have 3 avenues. 

1. Diplomatic engagement with China. Around 30 domestic companies have applied for permits, and are asking the Indian Government to pursue China to expedite said permits. However, with current stocks of around 30-50 days only, and the permits taking at least 45 days (not accounting for delays), the pressure is high. 
2. Exploring alternatives. Alternate suppliers, like Vietnam, Indonesia, Japan, Australia etc., are being explored. However, it is difficult to say yet if they can fulfill India’s requirements of not. 
3. Compensate Domestically. While India’s own production can not keep up, intentions are to ramp up production as much as possible to fulfill at least part of the demand. 

All 3 are being pursued simultaneously.

Long Term

Expanding our own capabilities and setting up reliable alternate suppliers are our only long term solutions. Both are being pursued.

As of June 2025, China and the US are in talks to improve relations. It's a "framework agreement," meaning the details are still being worked out and await presidential approval. The two sides reportedly have until August 10, 2025, to negotiate a more comprehensive agreement. 
Although this is a step in the right direction, the timeline here makes some believe it won't remove restrictions in time.