AHEAD OF THE first quarter results, all eyes were on the rare-earth element supply runways of automotive companies. As China continued its blockade, it was widely expected that the impact of the clampdown would become clearer as manufacturers’ stock of rare-earth elements begin to run out.

Maruti Suzuki was among the first auto firms where the impact of the rare-earth magnet supply crunch was becoming palpable as the launch of e VITARA, its first battery electric vehicle (BEV), fast approached. Reports suggested that India’s largest passenger vehicles maker pruned e VITARA’s production by two-thirds to 8,221 units from its original target of 26,512. However, the company denied this. “(MSIL) has so far managed to ensure that no production was lost due to a shortage of magnets,” R.C. Bhargava, chairman, Maruti Suzuki, stated in the FY25 annual report.

“It is a challenge, and our engineers are working to mitigate and ensure we do not have any impact,” said Rahul Bharti, senior executive officer, corporate affairs, MSIL, on the sidelines of its Q1FY26 results. He added that the company was managing it. “If and when there is an impact, we will come back to you. Rare-earth magnets are used in EVs and internal combustion engine (ICE) vehicles. The consumption of magnets in EVs is much higher. In ICEs, it is much lower, but it does exist. Mostly it is in the motor, in sensors or some electrical parts.”

Meanwhile, tepid domestic demand caught the industry off guard. It has hit even the hitherto resilient utility vehicles segment. But Mahindra & Mahindra (M&M) has been an outlier with a 22% jump in the sales of SUVs to about 152,000 units in Q1FY26. This jump can be attributed to the runaway success of its Born Electric BEVs. According to the VAHAN dashboard, Mahindra Electric Automobile Ltd sold 2,698 units in July and 3,017 in June — an impressive show considering the born electric vehicles start from an ex-showroom price of ₹21.90 lakh.

Rajesh Jejurikar, executive director and CEO, auto and farm division, M&M, says the carmaker is “comfortably covered” on the rare-earth magnet issue. “We have [faced] no disruption in production. We’ve taken a series of actions, some of which have been around inventory,” he says, adding that M&M is comfortably placed for at least the next two quarters and is “mostly covered” for Q4FY26. “We’ve taken a variety of actions, substituting the rare-earth with light earth; we’ve looked at ferrites. Rare-earth is not an issue now.”

Mahindra's jump in sales has been at the cost of incumbents such as Hyundai Motor India Limited (HMIL), which reported an 11.5% decline in domestic sales from the year-ago period to 132,259 units, and a sequential decrease of 13.9%. The company attributed this to a muted domestic demand, partly due to the skirmishes along the India-Pakistan border in May.

However, the South Korean carmaker downplayed the impact of rare-earth magnets on its production. During the post-earnings conference call after the Q1 results, chief manufacturing officer Gopalakrishnan C.S. remarked that HMIL had enough stockpile to handle any near-term supply disruptions. While HMIL will eventually ramp up its portfolio of BEVs with an aggressive launch pipeline, Tata Motors has more skin in the game. India’s largest maker of electric passenger vehicles, it has been fending off competition from M&M and JSW MG Motor India. According to VAHAN data, M&M, JSW MG Motor India, and Tata Motors sold 15,556, 29,381, and 34,700 units, respectively, between January and July this year.

However, compared to M&M, Tata Motors’ runway of rare-earth magnets is thinner. “We are covered as far as the stock is concerned for the next two to three months. We have created alternatives to deal with the situation,” said Shailesh Chandra, managing director, Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility, during the Q1 post-earnings call. “It means alternative sourcing from beyond China, but also seeing if we can avoid rare-earth wherever possible… So, hopefully, we should not be affected,” he had said.

While major public-listed passenger vehicles makers have maintained, to some extent, uniformity in their outlook on the rare-earth magnet supply, alarm bells had rung for Bajaj Auto, India’s second-largest two-wheeler manufacturer after Hero MotoCorp, in June, when MD Rajiv Bajaj spoke forebodingly of a ‘zero’ production possibility in August. While the worst fears were kept at bay, he was prophetic, as during the Q1 results, chief financial officer Dinesh Thapar stated the company expected half of its electric two-wheeler output to be hit in Q2, despite the company looking at redesigning motors and sourcing magnets from outside China. The company had turned towards “tactical interventions” and even formed a “crack team” for immediate recourse.

By August-end, the Pulsar-maker was able to turn around its woes as it secured a sufficient supply of rare-earth magnets and other key materials, ahead of the festive season. “We started receiving clearance for our shipments of light rare-earth magnets about three to four weeks ago,” Rajiv Bajaj was quoted in media reports. Production of Chetak electric scooters restarted ahead of schedule. Now, the company looks to nearly triple Chetak’s production from 15,000 units in August to 40,000 by September. The long-term plan is to potentially de-risk the supply crisis by designing components that do not require any rare-earth magnets.

This is a template that is gaining popularity among Bajaj’s peers as well. Ather Energy, the prominent pure-play EV maker, is also mulling shifting production to heavy, rare-earth-free magnets or moving away from rare-earth to ferrite. “I’m more optimistic about moving to rare-earth magnets from heavy rare-earth magnets because rare-earth magnets don’t have an export ban and have a little bit more supply available globally, with China not being the only one,” says co-founder and CEO Tarun Mehta. China’s export curbs specifically target heavy rare-earth elements and the magnets made with them. However, nearly all global supply chains of rare-earth magnets still rely on China.

Similarly, Ather’s rival Ola Electric has already stated it has plans to introduce rare-earth-free motors by the next quarter. “For the past couple of years, we have been developing rare-earth-free motors,” the company stated in a letter to shareholders. The Bhavish Aggarwal-led company accelerated this programme in April and has “already productionised” its rare-earth-free motors. “These motors ensure no business continuity risk, are parity in performance, and save money as rare-earth magnets are costly,” the company added. For the short term, it has reasonable inventory levels and has been sourcing the rare-earth magnets from two countries of origin. “And since we are not reliant on intermediary motor suppliers, we’ve been able to change over quickly and ramp up other sources of rare earth magnets,” it added.

Ather admits it faced seven days’ worth of impact due to the rare-earth crisis. “The right way to see this would be not like production stopped for seven days, but a possible gap in our ability to supply our dealers’ demand for up to about a week for this entire quarter,” Mehta says. However, he remains optimistic that any impact would be restricted to Q2. “China has banned the export of heavy rare-earth magnets, which leaves few options for anybody.” Another option is to partially assemble motors in China and not import magnets. Without elaborating further, Mehta says he will be able to provide more colour by the end of Q2.

As for Bajaj, the company expects the supply of rare-earth magnets to be better than its previous estimates. As a result, it is optimistic about meeting the festive demands. The ride maker has also claimed that Chetak’s retail volumes more than doubled year-on-year, comprising half of the industry’s incremental volume.

Meanwhile, Hero MotoCorp fared relatively better in the rare-earth stockpile. Acting CEO Vikram Kasbekar says the company is covered for Q2FY26 in the ICE and EV segments. He says, “Supplies normalised for us during the quarter. We continue to work on alternatives, and this is something that we will try to circumvent.”

TVS Motor, whose iQube leads the two-wheeler industry with a 6.3% share, has also taken measures such as local sourcing and exploring alternatives. “We also resized some locally available higher-sized magnets,” says K.N. Radhakrishnan, director and CEO, TVS Motor.

Meanwhile, The upcoming festive season, when the subdued demand is expected to pick up, is a litmus test. The Centre’s GST revamp will be a fillip. The GST rates on smaller cars (under 1,200cc) and two-wheelers are expected to be slashed from 28% to 18% ahead of Diwali. Coupled with the repo rate cuts, it is expected to drive customers to showrooms. According to a Motilal Oswal report, the demand for electric two-wheelers is here to stay, amid rising interest from rural and traditional customers. Automakers are buoyant about the festive season and do not see a prolonged clampdown. The warming relationship between India and China, in the aftermath of the Trump administration’s reciprocal tariff tactics, and Prime Minister Narendra Modi’s assurance of working towards building national capacity in critical minerals have further boosted the sector’s morale.