Company Outsider: TVS Motor’s rare-earth warning signal
China has relaxed its rigid stance on rare earth magnet exports, but the six-month crisis has exposed our dependence in sourcing critical inputs. The lesson: It's not time to relax yet, we are still vulnerable on the rare earth front.
Credit to TVS Motor for flagging supply-chain risk, policy timing and industry dynamics, all in one breath. The two-wheeler maker has effectively connected the three forces reshaping India's mobility landscape—the global rare-earth magnet shortage, the domestic boost from GST reform, and the shifting economics of the two- and three-wheeler market. Few automakers have been this forthright about how geopolitics and policy coherence now matter as much as consumer demand.
Sure, the latest news of China approving rare-earth exports to some Indian companies comes as a big relief for automakers like TVS Motor, effectively ending the most immediate supply freeze. But given the broader geopolitical realities, Indian companies can't afford to relax. TVS's original foresight remains critical.
Announcing its September quarter results, the company reiterated that rare-earth magnet availability "continues to pose challenges in the short to medium term". While that was before the recent concession, the broader message holds true even now. The company’s CEO K.N. Radhakrishnan said the industry "would have done much, much bigger" if magnet supply had been normal. The fact is, China may have softened its original rigid stance, but normalcy is far from guaranteed. That’s because it controls nearly 70% of global magnet processing. When it expanded export controls earlier this year, the shock was felt across global EV, wind and electronics supply chains.
The fact that the export freeze has now been lifted is a political and commercial win for India, but the underlying vulnerability remains, since 93% of its rare-earth magnets imports in FY25 were sourced from China. This dependence is precisely why the initial controls caused serious disruption and why the current relief must be viewed as a temporary breathing space.
For months, TVS felt the impact of the choked supply leading to higher input costs, production delays, and the risk of losing momentum just as its electric portfolio is scaling toward profitability. The company wasn't alone. In June, the Society of Indian Automobile Manufacturers (SIAM) had warned that falling inventories could force production cuts. Bajaj Auto flagged the potential for significant reductions, as did Ather Energy. Even four-wheeler manufacturers like Maruti Suzuki, Mahindra & Mahindra, and Toyota expressed concerns, with only Tata Motors claiming sufficient inventory buffers.
TVS is now actively developing Heavy Rare Earth Free (HREF) motors using ferrite alternatives, focusing on what it calls 'HRA-free, cerite-based, magnet-free' technologies and light rare-earth solutions that fall outside China's tightest export restrictions. Globally, automakers are pursuing similar escape routes. Tesla announced in 2023 that its next-generation permanent magnet motors would eliminate rare earths entirely, most likely by adopting ferrite magnets, while BMW's fifth-generation electric motors employ motor technology that does not use rare earths. The problem is that these alternatives come with brutal trade-offs. Ferrite-based motors typically show 50-70% power reduction compared to rare-earth versions of the same size, requiring significantly larger motors, which add weight and cost or vastly more magnetic material.
Thankfully, in the midst of this supply-chain gloom, there’s been light on another front in the form of GST cuts on two-wheelers below 350cc. This translates to significant on-road savings for the middle-class commuter looking at buying entry-level models.
The signalling matters as much as the savings. After years of uneven policy treatment between ICE and electric vehicles, the GST change rewards affordability over engine type. It's a more neutral, pragmatic approach to mobility; one that acknowledges market realities rather than mandating outcomes. For companies like TVS, this provides the crucial cushion. As its EV business manages the aftermath of supply bottlenecks, the ICE portfolio, which is still over 80% of industry sales, gets a meaningful shot in the arm.
The Indian two and three-wheeler industry now runs on two parallel tracks. The ICE segment is enjoying rare policy tailwinds and dominates volumes, while the EV segment faces cost and supply stress, but represents the future. The best manufacturers will need to straddle both, carefully managing the balance between defending legacy revenue and investing in tomorrow's technology.
Notwithstanding China’s softened stand, TVS has done well to call out plainly that India's EV transition is vulnerable at its roots. A rare-earth supply chain, controlled by a single nation with shifting geopolitical priorities, is a strategic Achilles' heel, not a transient procurement hiccup that has been permanently solved by one diplomatic win.
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