India's rare earth magnets crisis: What lies ahead for the EV sector?

As China's curbs on rare earth magnets send ripples across global automotive, defence and consumer electronics supply chains, India's fledgling EV ecosystem must finally reckon with its overreliance on China. At present, with no immediate resolution in sight, the EV industry faces major setbacks in the form of production delays, as Beijing turns down not one but two applications for India-bound shipments. China holds complete dominance over rare earth elements, mining 61 per cent and refining 91 per cent of the global supply. While India has the third-largest reserves of rare earth minerals, it has seen little to no investment from private companies and is yet to develop a self-reliant supply chain.
Rare earth magnets are crucial for a variety of electronics. In the automotive scheme of things, they're needed for ICE vehicles as well, featuring in the motors found in power steering, windscreen wipers, etc. However, for EVs, they are indispensable as they're part of the Permanent Magnet Synchronous Motors, which deliver high torque, are energy efficient, and are compact in size.
According to Ravi Bhatia, President and Director of JATO Dynamics India, an automotive market intelligence and analysis firm, the outlook isn't good, particularly for EVs and electric two-wheelers. Bhatia predicts manufacturing delays that could range between two and six months and a 5-8 per cent price hike. This means that an electric scooter costing ₹ 1.6 lakh could be dearer by ₹ 8-13,000. The issue is that even ICE cars need rare earth magnets for motors, driving power steering, windscreen wipers, etc.
'It takes about 4-5 years to scale up the technology and qualify with auto OEMs. Thereafter, it takes about 2 years to build the plant. It takes a lot of capital during this time to scale up technology. Unfortunately, all the processing is done in China in order to reach the levels of purification needed,' says Vikram Handa, MD at Epsilon Carbon Pvt Ltd, an India-based firm specialising in cathode and anode production.
'Having an independent supply chain needs policy support, risk capital and time,' Bhatia says. Up till now, private firms have been risk-averse and rightly so, as manufacturers have always sought to look toward China thanks to their competitive pricing. According to Bhatia, setting up a mine costs anywhere between ₹ 4000 and ₹ 8000 crore and comes with a decade-long gestation period.
'The kind of policy support offered by China 20 years ago was just not available either in India or the US or Europe, so singling out Indian enterprises will not be fair. And while we have large reserves, the process from reserve to actual production takes 10 years,' says Nitin Gupta, CEO and Co-Founder of Attero Recycling. Gupta also states that a policy framework supporting and incentivising the mining and refining of critical and rare earth minerals has only just been put in place in the form of the National Critical Minerals Mission (which has allocated a budget of ₹ 16,300 over a period of seven years). The Critical Minerals Act is also likely to be amended in the monsoon session, according to an article in the Business Standard. 'We need policy and capital to build locally so we are resilient to shocks in the future.'
'You can go to Australia or Canada, where large companies are established. You just have to pay more,' says Handa. Handa also uses the example of production-ready graphite manufactured by Epsilon, which remains unutilised by Indian OEMs who prefer to purchase directly from China, which manufactures it at a much larger scale, and sells it for the lowest cost, thanks to the industry being heavily subsidised. 'We make natural and synthetic graphite, but unfortunately, we are catering more to international customers because the Indian customer continues to buy from China.'
Bhatia claims that the government is talking to companies in Australia and Japan and highlights once again that China's processing of over 90 per cent of rare earth magnets makes us extremely vulnerable. 'It's a big threat that can slow down the wheels of the economy.'
While setting up a local supply chain is non-negotiable, its effects are only going to be felt in a decade. Gupta points to a more elegant short-term solution: Recycling. 'Will setting up a domestic supply chain take 10 years? The answer is no. Setting up mines and refineries will take 10 years, but India's domestic supply chain can be fastened very well through recycling. If you look at battery grade minerals, cobalt, lithium carbonate and nickel graphite, we are extracting more than 97 per cent pure battery grade cobalt, lithium, nickel and graphite and putting it back in the circular economy. Globally, extraction efficiency is less than 75 per cent, including China.
Gupta claims that Attero is also extracting rare earth materials like neodymium from magnets, which are up for recycling. 'Theoretically speaking, we can meet 80-90 per cent of the demand via recycling if 90 per cent of end-of-life products are put back into recycling. We can make India the recycling hub of the world. We don't need to restrict ourselves to end-of-life products produced in India,' says Gupta. 'Focus on domestic recycling, build-up capacity to become the global recycling hub and in parallel, continue to develop mining activities so that in the long-term, we are only self-reliant but we can supply to the world.'
'The government needs to reassess incentives for hybrids,' says Bhatia. 'I've been advocating the use of hybrids for the next decade as they need fewer resources as compared to EVs. We are a price-sensitive market,' he adds. However, there's no circumventing the need for rare earth magnets since their application is so widespread. Given that hybrids feature electric motors, they rely on rare earth magnets as well.
Although the government has suggested using alternative forms of technologies like ferrite magnets or magnet-free designs, this isn't feasible according to Gupta. 'There are major cost and performance trade-offs. Take your cell phone. Your cell phone has a speaker. That speaker has a magnet in it. Try changing that to a ferrite magnet, your phone will have to be 4 times its current size.'
Gupta says that hybrids are feasible in the short term, but do not offer long-term solutions. 'Considering hybrids as an alternative to EVs is a good idea because you're not betting on one tech. But globally, EVs will be the predominant technology.'

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