Rare earth magnet crunch: Auto industry mulls import of fully assembled motors from China, say analysts

In the wake of China’s restrictions on rare-earth magnet exports, Indian automakers and auto component firms are exploring a range of contingency options, according to rating agency ICRA. These options include importing fully assembled motors from China, shipping the rotors on which the rare earth magnets are mounted to China for magnet assembly and then re-importing the assembled rotors, substituting rare earth magnets with alternatively engineered materials aimed at achieving similar magnetic performance as rare earths without crossing the threshold that would classify them as rare earth magnets, and introducing rare earth magnet-free motors and instead switching over to motors that rely on electromagnets or other inductive mechanisms.

ICRA, however, said that these workarounds, however, come with logistical, regulatory, and engineering complexities. Implementing some of the above alternatives would also involve accelerating the development, testing, and validation cycles to minimise production disruptions, the rating agency said.

ICRA cautioned that inventories of rare earth magnets may taper off by mid-July 2025 for certain automotive applications, following the export restrictions from China and ensuing shipment delays.

“With China tightening export controls and delaying shipment clearances, rare earth magnet inventories are projected to last only until mid-July 2025 for several, if not all, passenger vehicle and two-wheeler applications,” said Jitin Makkar, Senior Vice President and Group Head – Corporate Ratings, ICRA Ltd.

The current unease over rare earth magnet supplies is a déjà vu moment for India’s automobile industry. The industry, having recovered from the semiconductor supply crunch of 2021–22 that shaved off nearly 100,000 units—or about 4%—from passenger vehicle production, now faces a fresh disruption, said ICRA.

According to another rating agency CareEdge, the ongoing magnet shortage threatens the production of electric vehicles, high-end ICE and hybrid vehicles from July 2025. The impact of these restrictions is expected to ripple across electric, ICE and hybrid vehicles, it warned. REEs are essential in various automotive components, including electric motors, battery management systems, catalytic converters, infotainment systems, power steering, brake-by-wire systems, and advanced safety sensors. “The disruption is not limited to electric vehicles (EVs) but extends to ICE & hybrid models. While REE-based components are utilised in traditional ICE vehicles, the production of EVs is fundamentally reliant on them—without REEs, manufacturing an EV is virtually impossible,” said CareEdge.

The magnets—neodymium-iron-boron (NdFeB)—are known for their strength and efficiency. They are reserved for high-performance automotive applications such as traction motors in electric vehicles (two-wheelers and passenger vehicles) and power steering motors (in passenger vehicles) in both electric vehicles and internal combustion engine vehicles, ICRA noted. In comparison, the more conventional ferrite magnets (the small black magnets we usually see) are used for less performance sensitive applications such as wiper motors, window regulators, and starter motors.

Motors used in electric two-wheelers typically range in cost from ₹8,000 and ₹15,000, depending on their power output and vehicle specifications, said ICRA’s Makkar. Of that, rare earth magnets account for nearly 30% of the total motor unit cost. In FY2025, India imported around $200 million worth of these magnets for both automotive and non-automotive applications, with approximately 85% of this sourced from China. “The supply uncertainty has cast a shadow on production planning. The dependence on China for these specialised materials could upend the automobile sector, particularly the fast-growing electric vehicle segment, if the concern remains unresolved,” said Makkar.

In order to maintain production continuity while domestic and alternative sourcing strategies are being developed, CareEdge said high-end vehicle variants incorporating more rare-earth magnet-dependent technologies will likely be affected first. “OEMs may shift focus towards producing mid-range or base models to mitigate the impact of the supply constraints. In the short term, Indian automakers are expected to resort to importing fully assembled components and subsystems to mitigate the rare earth magnet shortage in case of a delay in obtaining approvals from China for importing REE. While this may offer a temporary reprieve, it is likely to increase input costs due to higher import duties, logistics expenses, and currency fluctuations,” cautioned CareEdge.

While the industry stakeholders actively advocate for diplomatic engagement with China to expedite pending approvals, streamline licensing procedures and ensure the uninterrupted flow of critical components, the government is considering commercialising magnet manufacturing technologies currently held by select public sector entities as an immediate contingency measure, according to CareEdge.

“Simultaneously, efforts are underway to formalise alternative supply chains for REEs, with potential sourcing from countries such as Vietnam, Australia and the U.S. However, these alternative sources lack the processing capacity to meet global demand soon,” said CareEdge.

To build long-term resilience, India must accelerate the development of a domestic rare earth element supply chain, suggested the rating agency. This includes exploring REE-rich regions, incentivising private sector participation in mining and processing, investing in R&D for alternative technologies, and forging global partnerships. India’s import dependency on China for rare earth permanent magnet remained as high as 90% during FY24 and FY25. This extreme dependence highlights the urgent need for strategic investment in refining infrastructure to achieve technological self-reliance, it said.

"India’s rare earth element crisis is not merely a supply chain disruption but a strategic wake-up call. The bottleneck created by China’s export licensing regime has exposed the fragility of India’s EV ambitions, with inventories depleting and approvals stalled. This crisis underscores the perils of over-dependence on a single geopolitical actor for critical inputs. The path to resilience lies in building a full-spectrum domestic REE ecosystem. Strategic reserves, public-private R&D, and global partnerships must converge into a coherent national strategy," said Madhusudhan Goswami, Assistant Director, CareEdge Ratings.