Indian EVs at risk! Delay in Beijing's rare earth magnets can decelerate auto sector growth; China tightens export rules

India's car industry could be in trouble as China's stricter control over rare earth magnet exports and shipment clearances delays may slow down electric vehicle production, Crisil Ratings said.
The rating agency said that a disruption of even over a month can affect EV launches, production and push back the sector's growth trajectory.
Rare earth magnets
Rare earth magnets are low cost but crucial to permanent magnet synchronous motors (PMSMs) used in EVs and hybrids for their high torque and energy efficiency.
In internal combustion engine (ICE) vehicles, rare earth magnets are primarily used in electric power steering systems and select other motorised components.
China's restriction on export
The alarm stems from Beijing's recent export restrictions, imposed in April 2025, on seven rare earth elements and finished magnets.
The move, which mandates detailed end-use declarations and bans defence-linked or US-bound re-exports, has resulted in delayed clearances and growing shipment backlogs.
'With the clearance process taking at least 45 days, this added scrutiny has significantly delayed approvals.
And the growing backlog has further slowed clearances, tightening global supply chains,' the report said, cited by ANI.
India, which relied on China for over 80% of its 540-tonne magnet imports in the last fiscal, has began to feel the squeeze.
Crisil revealed that by the end of May, around 30 import requests from Indian companies had received clearance from New Delhi — yet none had been approved by Chinese authorities, and no shipments had landed.
'The supply squeeze comes just as the auto sector is preparing for aggressive EV rollouts,' said Anuj Sethi, senior director at Crisil Ratings.
'Over a dozen new electric models are planned for launch, most built on PMSM platforms. While most automakers currently have 4-6 weeks of inventory, prolonged delays could start affecting vehicle production, with EV models facing deferrals or rescheduling from July 2025.
A broader impact on two-wheelers (2W) and ICE PVs may follow if the supply bottlenecks persist for an extended period.'
Passenger vehicle volumes are forecast to grow 2–4% in FY26, but EVs, starting from a lower base, are expected to rise 35–40%. Electric two-wheelers could expand 27%, outpacing the wider two-wheeler segment's 8–10% growth. Crisil warned that these projections could soften if supply constraints worsen.
How is India dealing with Bejing's blow?
The Indian government and automakers are now working on a twin-pronged strategy, in the short term, building strategic inventories, tapping alternative suppliers and stepping up domestic assembly under the Production Linked Incentive (PLI) scheme. In the long run, the focus is on reducing import dependency by accelerating rare earth exploration, creating local processing capabilities and investing in recycling.
In the diplomatic arena, India has opened direct lines of communication with Beijing to stabilise supply flows.
'We are in touch with the Chinese side, both here in Delhi as also in Beijing to bring predictability in supply chain for trade, consistent with international practices' said ministry of external affairs spokesperson Randhir Jaiswal during a press briefing.
Commerce and industry minister Piyush Goyal, meanwhile, described China's export restrictions as a 'wake-up call' for the world.
Speaking during his visit to Switzerland, Goyal said India was actively working to develop alternate supply chains and positioning itself as a credible partner for global businesses looking to reduce dependence on China.
China's dominance in rare earth processing, controlling over 90% of the global magnet output, has left industries worldwide vulnerable. These magnets are not only vital for EVs but also used across sectors such as home appliances and renewable energy.
Efforts are also being made to diversify sources. At the recent India-Central Asia Dialogue in New Delhi, India and five Central Asian nations (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) expressed interest in jointly exploring rare earths and critical minerals, potentially offering a longer-term buffer against global supply shocks.
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