Electric vehicles in India are picking pace, but supply shortage of rare earth magnets could derail sales momentum- The Week

Electric vehicle (EV) sales in India have been slowly but surely gaining traction. Data released by the Federation of Auto Dealers Association showed that electric passenger vehicle sales crossed 4 per cent market share in May 2025, up from 2.57 per cent a year ago, while in two-wheelers, EVs accounted for 6.07 per cent share from 5.02. However, a shortage of rare earth magnets threatens to slam the brakes on the road ahead, even as major automakers are lining up a slew of launches in the EV space. 

Rare earth magnets are integral to permanent magnet synchronous motors (PMSM) used in EVs. Even hybrid vehicles use it for efficient propulsion. In internal combustion engine vehicles, their use is limited, but they are still used in electric power steering and other motorised systems.

A couple of months ago, China, which is a dominant exporter of rare earth magnets, imposed export restrictions on seven rare earth elements and finished magnets, mandating export licenses. 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, points out ratings agency CRISIL.

In the 2024-25 financial year, India sourced almost 80 per cent of its 540 tonne magnet imports from China. According to CRISIL, by May 2025, nearly 30 import requests from Indian companies were endorsed by the Indian government, but none have yet been approved by the Chinese authorities, and no shipments have arrived. This is happening at a time when the automotive sector was gearing up for an aggressive EV push.

Thus far, the expectation is that electric PV volumes could rise 35-40 per cent in 2025-26, way faster than the two to four per cent growth likely in the overall domestic PV volumes. Similarly, electric two-wheeler sales are expected to outpace their ICE counterparts; e-2W sales are expected to grow 27 per cent, compared with 8-10 per cent overall 2W volume growth. The Chinese squeeze could well derail this growth momentum for EVs.

“Over a dozen new electric models are planned for launch, most built on PMSM platforms. While most automakers currently have four to six 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 and ICE PVs may follow if the supply bottlenecks persist for an extended period,” noted Anuj Sethi, senior director at CRISIL Ratings.

Automakers are now optimising inventories and scouting for new markets to source rare earth magnets, but, close to 90 per cent of the rare earth magnet processing is concentrated in China with limited short-term alternatives, say CRISIL executives.

“Despite contributing less than 5 per cent of a vehicle’s cost, these magnets are indispensable for EV motors and electric steering systems. Automakers are actively engaging with alternative suppliers in countries such as Vietnam, Indonesia, Japan, Australia, and the US, while also optimising existing inventories,” said Poonam Upadhyay, director at CRISIL Ratings.

In the short term, the government and automakers may look at building strategic inventories, tapping alternative suppliers and accelerating domestic assembly under production-linked incentive schemes. But, in the long term, reducing import dependency will hinge on fast-tracking rare earth exploration, building local production capacity and investing in recycling infrastructure.

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