On April 4th, the Chinese government took a decision that has sent shockwaves across the global automotive and manufacturing sectors: Beijing took the decision to restrict the exports of rare earth magnets, a key component in electric vehicles, ICE (internal combustion engine) vehicles, smartphones and MRI machines.
But why are these tiny magnets such a big deal? And does this move have the potential to bring India’s EV sector a halt? Here’s a deeper look.
Rare earth minerals: what they are and what they do
Rare earth elements (REE) are a group of 17 minerals, including neodymium, dysprosium, samarium, and gadolinium, which are essential for a range of high-tech applications. The tag of “rare,” has been given to these elements not because they are scarce, but because they are very difficult to extract. These elements are used to manufacture rare earth permanent magnets.
These magnets have exceptional magnetic strength, high energy density, and superior performance compared to conventional magnets. Their ability to produce powerful magnetic fields in compact forms makes them indispensable across a wide range of industries, and are used to power everything from compact electric scooters to giant wind turbines. These magnets are a critical part of almost all EV drivetrains and many ICE vehicle components, like power steering systems and infotainment units.
And the biggest supplier of rare earth minerals and magnets is, you guessed it, China.
China’s new policy
China holds over 90% of the global processing capacity for rare earth magnets. In April, Beijing imposed export restrictions in response to tariffs introduced by U.S. President Donald Trump, mandating that companies secure import permits from Chinese authorities. Although the restrictions mainly target high-performance magnets, shipments of lower-grade magnets have also faced delays due to uncertainty surrounding the implementation of the new rules.
Things have gotten tricky for Indian importers because of the complex new approval process, which includes “end-user certificates,” a verification that the Chinese government is demanding to ensure that the importer will not use the magnets for military purposes. These certificates serve as proof that Indian importers are using Chinese rare earth magnets solely for civilian purposes, like in automotive or electronics applications, and not for defence or dual-use technologies.
These end-user certificates have to be signed off by the Indian government, verified by the Chinese embassy in New Delhi, and forwarded to the Chinese supplier, after which Beijing issues an export license to the supplier. The new system adds a layer of uncertainty, in addition to making the procurement process much longer. If shipment clearances from China continue to face delays, India’s EV manufacturers are likely to be hit first, due to their reliance on rare earth magnet-based drivetrains.
Why China dominates rare earth mineral supply
Rare earth minerals are not found exclusively in China, if that’s what you are thinking. These minerals exist across the globe, with India holding the third-largest reserves. However, exploring for, mining and refining these minerals is where China has a near-monopoly: statistics from a Globaldata report indicate that in 2023, the PRC produced 69% of all rare earth minerals and processed 90% of the global supply.
Contrast this with the other major players in the REE space. According to the same report from GlobalData, the US, the second largest producer, accounted for 12.3% of global production in 2023. Myanmar (Burma), the third-largest, contributed 10.9%, though its industry is mired in controversy. Much of its output comes from unregulated, small-scale mining operations reportedly linked to armed militias, often operating without environmental safeguards or remediation plans.
Other notable producers include Australia, Thailand, and India, which together made up 8% of global output. Australia, with significant reserves, is expanding its processing infrastructure. Meanwhile, countries like Madagascar and Uganda are beginning to tap into their own reserves, aiming to reduce China’s dominance in the market.
However, competing with China’s low-cost production and established supply chain remains a significant hurdle. The process is capital-intensive, wreaks havoc on the environment, and has been dominated by state-backed Chinese companies for the past 4 decades, which is a massive head-start. While India sits on vast reserves, there is almost no private investment in this sector, which is why there’s no domestic supply to speak of.
How will the REE supply chain disruption affect Indian EV companies?
India is almost entirely reliant on China’s rare earth mineral supply. In FY2023–24, the country imported an estimated 460 tonnes of rare earth permanent magnets, virtually all from Chinese manufacturers. This figure is expected to rise to around 700 tonnes in FY2024–25, with a projected value of approximately $30 million, according to The Economic Times.
India also imports over 1,000 tonnes annually of rare earth raw materials — such as oxides, salts, and metals of neodymium, praseodymium, and dysprosium — to support its automotive, electronics, and green energy industries. Official data shows that in FY2023–24, China supplied 699 tonnes of rare earth metals to India, accounting for 100% of imports in that category, along with the majority of rare earth compounds.
Atul Greentech, a subsidiary of Atul Auto, is a key manufacturer of electric 3 wheelers (e-rickshaws). They have seen triple digit growth in the L5 3-wheeler EV category since launching in the segment two years ago and are confident of continued growth. The company’s MD Divya Chandra, while speaking to Smallcap Spotlight, said, “India is the only place that offers such national adoption (for electric 3 wheelers) and even without incentives, it is growing at a tremendous pace, and we expect a conversion to grow very fast for electric vehicles in the 3-wheeler category.”
When quizzed about the possible challenges the EV sector faced, he said, “The challenge would be a developed ecosystem, the supply chain. Tomorrow if there is a change in policy or tariffs or difficult times with some countries, this can seriously impact the overall supply chain of EVs and that could be a time when we don’t have any indigenous domestic solutions available.”
The lack of indigenous domestic solutions affects the entire sector, and smallcap players (Wardwizard, Mercury EV Tech and Tunwal E-motors, to name a few) are more likely to be hit, as they may not have long-term contracts or diversified sourcing strategies. Larger players with integrated supply chains, inventory buffers, or international procurement networks may be able to weather the disruption better, but the waiting time for clearances affects everyone.
In the weeks since the announcement, the number of companies awaiting approval from China’s Ministry of Commerce to import rare earth magnets has almost doubled from 11 to 21, according to a report from the Economic Times. This includes big players like TVS Motor Bosch India, and Uno Minda.
The alternatives and the need for diversification
It’s clear that the disruption in the supply of rare earth elements presents a significant threat to India’s manufacturing and technology aspirations. Businesses that rely heavily on Chinese imports may face escalating costs, production setbacks, and squeezed profit margins if the situation persists.
So, what’s the alternative? Diversification is a crucial first step. As other nations strengthen their rare earth capabilities, forming sourcing partnerships with countries like Vietnam, Japan, South Korea, and Russia can provide a more stable and resilient supply chain. Promoting sustainable mining by minimising environmental impact and ensuring the responsible sourcing of raw materials is also important. Investing in innovative technologies to improve extraction, separation, and recycling processes can boost efficiency and lower costs for the whole sector.
And lastly, given India’s vast reserves, embarking on building an independent rare earth processing and magnet manufacturing sector is the need of the hour. Strengthening domestic production with policy initiatives and investment from public and private entities can go a long way in safeguarding against future supply chain disruptions and vulnerability.
Sources
Mining Technology: China currently controls over 69% of global rare earth production
Mint: India’s rare earth magnets crisis: What lies ahead for the EV sector?
The Core: China’s Export Curbs Squeeze Dealership Stock Before Festive Surge
Stanford Magnets: Everything You Need to Know About Rare Earth Magnets
LiveScience: Why are rare earth elements so rare?
American Geo Sciences: What are rare earth elements, and why are they important?
Economic Times: A China move risked leaving Indian auto production dead in its tracks
Economic Times: Why rare earths are the new battleground in US-China trade war