India’s EV Crisis: How China’s REE Curbs Are Shocking the Auto Industry

China's restriction of Rare Earth Elements (REE) and permanent magnets crippling India's commercials EV-sector. Automakers warn that the manufacturing of new vehicles may soon come to a standstill. While some companies from Europe and America started trickling supplies. But India still remains in a state of anticipation due to its strained relations with China. What lies ahead for India if the magnet supplies from China don't resume?

The China Factor– An Uneasy Reliance

On April 4, 2025, China imposed stricter export controls on its critical REEs, a group of 17 elements, which are crucial for EVs, defence, energy, and advanced electronics. India, which is the world's third-largest car market, fears severe disruption through this move. China is the dominant supplier of permanent magnets containing REEs, controlling about 90% of the world's production. India's magnet imports from China increased drastically by 95%, that is 53,700 tonnes in FY24- 25 from just 12,400 tonnes in FY21. 

According to an Indian Express report, a senior executive from the regional car industry stated that importers must now provide a written assurance to their Chinese suppliers stating that the rare earth magnets sourced from China will be used solely in vehicles and not for any defence or military purposes.

The two biggest Indian EV makers, Tata Motors and Mahindra & Mahindra, depend almost entirely on batteries from Chinese companies like BYD Co. and Gotion. Industry leaders are also concerned that additional disruptions in the supply chain could arise in the near future.

India’s leading automaker, which stated on Monday that it hadn’t yet felt the effects of the supply crisis, is now aiming to produce around 8,200 e-Vitaras between April and September—significantly lower than its initial target of 26,500—according to a company document reviewed by Reuters.

Companies like Bajaj Auto, a major producer of electric scooters, have also cautioned that a serious cutback in EV production is expected by July if China does not approve rare earth import permits soon.

Prime Minister Narendra Modi has set a target for electric vehicles to comprise 30% of India’s total passenger car sales by 2030, a significant rise from just 2.5% in 2024. However, recent restrictions by China on the export of permanent magnets could pose a setback to achieving this goal on time.

Why It Hurts MSMEs the Most

While for a moment large corporation might buffer supply shocks with alternate inventories or tie-ups, MSMEs lack such comforts. Precision tooling firms and LED producers have raised concerns over growing vulnerabilities. India's small-scale units producing components of electronic vehicles, alloys and other electronics are now facing delayed shipments, rising costs and uncertain delivery timelines.

India targets local rare earth growth

The US Geological Survey's January 2025 data shows that India held the world's third-largest rare earth elements reserves in 2024, which are estimated to be around 6.9 million tonnes. The top two were China (44 million tonnes) and Brazil (21 million tonnes). However, in terms of production, India ranked seventh at 2,900 tonnes, far behind China (2,55,000 tonnes), Myanmar (43,000), the US (41,600), Australia, Nigeria, and Thailand. 

The reason for falling behind in production is countries' heavy dependence on "Monazite," a reddish-brown phosphate mineral that contains REEs and several other useful elements. Along with REEs, it also contains "Thorium," which is a radioactive substance subject to stringent controls.

India also lacks processing and separation facilities compared to countries like China. 

Indian Rare Earths Limited (IREL), a PSU under the Department of Atomic Energy, refines Rare Earth Oxides from heavy metal ores, which contain REEs. However, as mentioned earlier, the production is limited because the processing of refining oxides into alloys and then into magnets is highly technical and, even to a certain extent, non-existent in India. 

According to a report by Reuters, Prime Minister Modi's government wants to develop domestic manufacturing capabilities and is thinking about providing financial incentives linked to production levels for companies. The scheme, currently being prepared by the Ministry of Heavy Industries, also proposes to partially cover the price gap between domestically produced magnets and cheaper Chinese imports. But a radical shift in the supply chain is not possible in the short term.

Conclusion 

India's dependence on China for REE is indeed a strategic vulnerability. However, with a mix of geoeconomic foresight and MSME empowerment vision, the country has the tools for transition from reliance to resilience. As the world decouples from supply monopolies, India's bottom-up manufacturing ecosystem can be the surprise hero of this rare-earth revolution.