Tata Motors stalls in India’s e-bus race amid rare earth crunch, tender woes

The maker of Starbus and Ultra sold just 213 units between January and September, down 80% from a year before, a sharp contrast from the previous two years when it led the segment with annual sales above 1,200 units. However, the company has since engaged with the government on magnets, and may re-enter the public tender space soon.

Earlier this year, China clamped down on exports of key rare earths that go into permanent magnets used in electric vehicle motors. There are few alternatives for these critical inputs, forcing companies to import fully-made motors, risking their eligibility to secure various local incentives. The government has since allowed electric truck and bus manufacturers to temporarily import such motors as an interim solution.

The magnet crisis and the public tendering model took a toll on Tata Motors e-bus sales, two executives aware of the matter said.

“There was an impact of the rare earth crisis on the production of the company. Moreover, the company has also had concerns with how state transport units have been looking to procure vehicles, which is pushing the burden of ownership on them," one of the two executives cited above said on the condition of anonymity.

The magnet curbs unfolded while the company was fulfilling a 3,600-bus tender from government-owned Convergence Energy Services Ltd, a Tata Motors spokesperson said. “Towards the final stages of this deployment, we faced some challenges related to the import of rare earth magnets, key components in permanent magnet motors," the spokesperson said, adding it is “engaged proactively" with the government to seek a temporary relaxation of import norms. This marks the first admission by Tata Motors that the rare earth crisis disrupted its production.

Tender trouble

The other key reason is Tata Motors' aversion to the public electric bus tendering model followed in several states, where the winning automaker must retain ownership of the fleet, and agree to operate and maintain the buses on a long-term contract. The busmaker is paid according to the kilometers clocked by the bus. While such a model aims to keep costs low for the transport utility, it stretches the manufacturer's finances and often leads to delayed payments.

“Electric buses are expensive; so, many of the agencies do not want to have such vehicles on their balance sheets. There are also delays in payments, so OEMs have to bear the cost and have these expensive products on their balance sheet," the second executive said. Tata Motors, which is keen on an asset-light model, has skipped many public tenders and focused instead on delivering existing orders, both executives said.

“We have consistently advocated for the inclusion of asset-light model (ALM) and payment security mechanism (PSM) as fundamentals for a financially viable and bankable business model," the company said. “We chose to follow a prudent business strategy and refrained from participating in certain tenders in the past due to the absence of these essential safeguards."

The broader slowdown in the market was also reflected in Tata Motors' lower sales. India registered 2,878 electric bus sales during January–September 2025, a 9.8% decline from the same period last year. The decline also coincides with a recent restructuring at Tata Motors, which separated its commercial and passenger vehicles.

Rivals gain speed

While Tata Motors slowed down, rivals accelerated.

The dip in sales from Tata Motors's commercial vehicle arm allowed Ashok Leyland Ltd, JBM Auto, PMI Electro Mobility, Olectra, and Eka Mobility to post higher e-bus sales between January and September. As per Vahan portal data, Ashok Leyland’s Switch Mobility saw e-bus sales surge over 750% to 690 units between January and September. Eka Mobility’s sales jumped 162% to 168 units, while Megha Engineering’s Olectra Greentech recorded 42% growth to 696 units.

This comes even as overall e-bus sales in India dropped 6% in FY25 to 3,314 units, with large cities like Delhi, Mumbai, and Chennai accounting for most registrations, as per Vahan data.

However, state tenders are the bread and butter for e-bus makers; hence, Tata Motors is looking for a fix, by tying up with an operator, which will manage daily operations and bear the financial responsibility. The company plans to re-enter select tenders through a consortium model, even as full clarity on asset-light mechanisms is awaited, the spokesperson added.

A CESL tender for 11,000 e-buses under the government’s PM E-Drive scheme is expected to close soon.

Beyond government contracts, Tata Motors is also exploring private opportunities—including a memorandum of understanding to supply 100 Magna EV intercity coaches to a private fleet operator and expanding into corporate staff transport.

Industry view: EV bus market reshapes

“The electric bus business is dependent on the tenders. The pecking order in the electric bus market will take time to stabilize," said Ashim Sharma, senior partner and group head at Nomura Research Institute. “E-bus players have had concerns about the tendering process which has put a burden of assets on the companies. Payments have also suffered due to poor health of state transport agencies. But the PM E-Drive scheme has looked to address these concerns," said Sharma.

During an analyst meeting on 29 September, Tata Motors said it aims to unlock synergies from its recent $4.4 billion acquisition and integrate battery cells from Agratas into its commercial vehicle business for improved performance.

Meanwhile, rivals are ramping up their own EV investments. Eka Mobility, backed by Japan’s Mitsui Corporation and Dutch VDL Groep, plans to invest ₹800 crore this fiscal. Ashok Leyland has committed ₹500 crore to its EV arm, while Mahindra & Mahindra’s acquisition of SML Isuzu could mark its entry into the e-bus market. JSW Group, too, is developing electric buses for launch next fiscal.