Rare risks, real lessons: How China’s 2025 moves jolted India’s auto industry

New Delhi: From the boardrooms of Mumbai to the policy corridors of Delhi, executives began huddling early this year over a little-known but indispensable component found in virtually every vehicle on the road: rare-earth magnets.

When China imposed a ban on these materials in April 2025, not many were aware of the critical role these magnets played. For nearly a month, automakers paused key decisions assuming Beijing's move was only temporary. However, China's refusal to relax export licensing for these magnets sent a shiver through the auto sector, exposing its vulnerability.

What makes rare-earth magnets especially crucial in geo-economics is that China, the world’s second-largest economy, accounts for about 60% of global rare-earth mining, and almost 90% of the refining and processing needed to convert them into magnets, used extensively in the automobile, renewable energy and consumer electronics sectors.

This crisis worked as a wake-up call for automakers and policymakers —that one of the country's most critical manufacturing sectors can be crippled.

While automakers were already under stress due to China's chokehold on rare-earth supplies, fresh concerns emerged after Beijing restricted exports of chips sold to automakers by Nexperia in Europe. With India lacking a domestic semiconductor supply, the crisis once again hit home after major European auto-component suppliers such as Bosch flagged a potential impact on operations.

The Netherlands-based Nexperia is a wholly-owned arm of Chinese electronics company Wingtech Technology.

The twin scares over rare-earth magnets and semiconductors within the year have underscored just how critical it is to diversify the supply chains.

“The auto sector manufacturing hubs of Tamil Nadu, Delhi-NCR, and around Pune have grown rapidly over the years. But based on 2025, the one question on everyone’s mind will be—what will China dominate next?" said Abhay Tilak, director of the Indian School of Political Economy, Pune.

Competitive Silence

Auto companies now believe that tackling supply-chain crises is a competitive advantage, and thus, they are keeping their cards close to the chest.

Asked how the company overcame the rare-earth crunch and ensured production did not suffer, Rajesh Jejurikar, executive director and chief executive officer (CEO) of the auto and farm division at Mahindra and Mahindra (M&M), said last month on the sidelines of the company’s seven-seater electric SUV XEV 9e launch that the information is a competitive advantage.

A key advantage Mahindra has in the battle against other carmakers is its ability to derisk its supply chain and achieve strong cost structures, Jejurikar said. “How we have managed to do it is a competitive input. But the fact is our production did not suffer any disruption over the last few months," he said on 27 November.

But one key risk that companies have openly acknowledged this year is that the rare earth crisis came as a rude shock, leaving them vulnerable. Bajaj Auto warned of a month-long halt to EV production, Ather guided for a 7-day factory dispatch hit, and Maruti Suzuki reportedly staggered the production of its new electric vehicle, e-Vitara, to deal with the crisis.

Both Tata Motors and its British subsidiary Jaguar Land Rover mentioned supply chain as a key risk in their annual reports for the first time. “Unmanaged supply chain issues can lead to production delays and shortages," the companies said in their annual reports for 2024-25, without mentioning any specific potential trigger.

With supply chain emerging as a key risk for nearly every automaker in 2025, the long road to building an alternative has begun for many, forcing them to explore multiple technologies.

Charting Own Path

Arun Malhotra, an auto industry veteran, said the year has been a lesson for automakers as they figure out how to diversify their supply chains.

“Automakers are more conscious of geopolitical risks, especially after the rare-earth crisis, so they are better equipped to tackle situations," Malhotra said. “One lesson everyone has learned is to not rely on one supplier or one country for a key component."

Although Jejurikar said that knowing how to derisk supply chains is a competitive advantage, the broader contours of how companies are doing so are becoming clearer.

Ather Energy and Bajaj Auto are among those that have told investors they have been looking to use light rare-earth magnets in their supply chains. China’s restrictions were limited to heavy rare-earth magnets.

“Once having experienced this…and we actually got punished a little bit more because we were on a higher growth trajectory and demand was far ahead of supply and we were playing a catch-up game in any case…so we really stumbled on it," Rakesh Sharma, executive director at Bajaj Auto, said during a press conference on 7 November. “So, I think one learning which we have taken is that we have to broaden and derisk our supply chain."

Bajaj Auto, the country’s fourth-largest two-wheeler maker, is now looking to introduce ferrite magnet motors in its scooters to cut dependence on China. Bhavish Aggarwal-led Ola Electric has stated that its efforts to derisk from China are being recognised by the industry.

“Our rare-earth-free motor is something we’d started developing more than a year or two back. And some of you who visited our factory a year ago would have seen this," Aggarwal said in the company's earnings call on 14 July. “In fact, we were quite transparent about it. And tab logo ko lagta tha ki hum toh aise hi dikha rahe hai par ab wo sach ho raha hai (Earlier, everyone thought we were just putting on a show, but now it’s actually happening)."

Supplier commentary suggests that light rare-earth magnet motors and rare-earth magnet-free motors are gaining a foothold in the development of new engineering solutions for automakers. Sona Comstar and Bosch India are among the two top suppliers that have acknowledged how the development of rare-earth-free motors and light rare-earth magnet motors has become crucial.

“We are currently exploring all options. And we're working. We have certain non-heavy rare-earth magnet motors already prepared for the Indian market. But of course, we will also look at non-ferrous magnets as we go forward," Guruprasad Mudlapur, managing director and chief technology officer at Bosch India, said during an earnings call on 11 November.

Sona Comstar has also indicated that the company has begun altering its supply chain.

“In response (to the rare-earth crisis), what we did was we shifted to alternative motor designs that do not rely on heavy rare-earth magnets," said Vivek Vikram Singh, managing director and group CEO at Sona Comstar. “So now we also manufacture our motors using light rare-earth magnets, and in this quarter, we have also successfully developed, tested, and validated a rare-earth-free Ferrite Assisted Synchronous Reluctance Motor."

Carmakers have so far been less upfront about their solutions, but have broadly trusted their engineering teams to help with supply-chain derisking.

Policy Response

As companies chart their own paths, the government is also stepping in to help build a more diversified supply chain.

What resulted nearly six months after China's export halt is a ₹7,280-crore package to incentivize the private sector to set up five plants to make rare-earth magnets in India. The Union Cabinet on 26 November approved the Rare Earth Permanent Magnet (REPM) scheme, which offers capital incentives for setting up plants within two years, followed by sales-based incentives for the next 5 years.

This scheme aims to raise India’s rare-earth magnet production capacity to 6,000 tonnes per annum. Currently, India’s capacity is approximately 1,500 tonnes, manufactured solely by state-run IREL (India) Ltd, formerly known as Indian Rare Earth Ltd.

But officials say this is only a short-term solution. Mint reported earlier that the government has also asked automakers to invest in research to determine whether the industry can move entirely away from rare-earth magnets.

Indian School of Political Economy's Tilak explained that this shows a two-pronged approach taken by the government. The incentives for magnet production in India are a short-term solution, while a push for R&D away from rare earths may signal a long-term shift, likely due to the massive environmental impact of this technology, he said.

The rare-earth magnet supply shortage left a lasting impact on Indian public policy, forcing the government to relax its strict localization requirements under EV incentive schemes.

Earlier localization rules for e-trucks under the PM E-Drive scheme, notified on 10 July this year, required manufacturers to stop imports of rare earth magnet-laden traction motors for the N2 category of e-trucks (those with a gross vehicle weight of between 3.5 tonnes and 12 tonnes) by 1 September 2025, a deadline that was extended to 1 March 2026.

For now, automakers are putting on a brave face and pressing ahead with new vehicle launches across powertrains, even as their supply chains work out their own China+1 strategies.

For now, automakers are putting on a brave face and pressing ahead with new vehicle launches across powertrains as they enter 2026, even as their supply chains work out their own China+1 strategies.