Indian Carmakers Face Chinese Rare-Earth Wall

The clock is ticking, and a failure to address immediate magnet supply may bring production of conventional and electric vehicles (EVs) in the world’s third-largest auto market to a standstill.

The origin of this sudden desperation for the Indian automotive industry is the ongoing trade tensions between China and the USA. As retaliation for unilateral US tariffs, China imposed global export curbs on a range of rare earth elements and related magnets on April 4. The official reason cited was national security.

Caught in the crossfire of this tariff war is India’s auto industry. India imports around 90 per cent of its rare earth magnet requirements from China. Following China’s stringent export controls, Indian original equipment manufacturers (OEMs) and auto parts makers are now left with a 90-day supply buffer.

The government has already opened diplomatic and business channels with China to resolve the issue at the earliest. However, it may take some time to arrive at a short-term solution, and this is creating anxiety within the Indian auto industry.

Ironically, India has the fifth-largest reserves of rare earth materials in the world — around 7 million tonnes. However, the country produced only 1 per cent of the global output of 2,900 tonnes in 2023.

A Global Problem

Under the new Chinese tariff regime, exporters of rare earth elements from China have to obtain special licences and submit end-use certificates (EUCs). Beijing justified these controls on national security grounds, ostensibly to curb the use of its rare earth materials for defence or security purposes by other countries.

Apart from the auto industry, electronics and green energy are two other major sectors affected. Those handling supply chains in aerospace manufacturers and semiconductor companies are also on high alert.

India is not alone in this crisis. Auto manufacturers in Europe, Japan and the USA are facing an acute supply shortage of rare earth elements. Some European auto components plants are already in the process of suspending operations due to the supply shortage.

China controls around 70 per cent of the mining and close to 90 per cent of global refining of rare earth materials. In the era of green transition, this lopsided supply chain was bound to affect the global supply flow, sooner or later. If short-term solutions are not found, a crisis like the acute semiconductor shortage during Covid-19 is in the making.

Is China Discriminating Against India?

To make matters more complicated, Indian auto manufacturers are accusing Chinese authorities of discrimination. While some big global behemoths, like Bosch, Continental Automotive, and Mahle Group, have reportedly secured rare earth export approvals from China, the Indian applications are facing long delays or denials.

According to the latest reports from insiders, the Chinese Embassy in India has approved nine Indian auto component makers’ EUCs in early June. However, final approvals have to come from China’s Commerce Ministry, and are still pending. The last two months saw no clearance of new shipments. The situation is precarious.

The Society of Indian Automobile Manufacturers (SIAM) and the Automotive Component Manufacturers Association (ACMA) have conveyed the anxiety of the industry to the government. These industry bodies feel that vehicle assembly lines in India may come to a standstill without a swift resolution. This can affect major Indian manufacturers like Maruti Suzuki, Mahindra, Hyundai India, Kia, and Bajaj Auto.

India’s Response Swift, But Will It Work?

New Delhi has already begun engaging with Beijing on the topic at the diplomatic level. A high-level delegation of Commerce Ministry officials and heavyweight industry representatives will be leaving for China soon to expedite export licence approvals.

Indian importers are also making sure that detailed EUCs are submitted, clearly showing that the magnets are going to be imported for non-defence applications.

In between, the Ministry of Heavy Industries is holding multiple stakeholder meetings to draw a long-term strategy for boosting domestic rare earth mining and magnet manufacturing. Incentives for local production, along with consideration of alternative supplies in Japan, are actively being explored.

A top official in the Ministry of Industry, on condition of anonymity, said, “India has begun limited domestic production. IREL Limited operates a plant in Visakhapatnam, making samarium-cobalt magnets, but its capacity (about 3,000 kg every year) is far below our demand.”

“For the short term, India has to scrounge global markets. Australia is one possible supplier. Neodymium and other rare-earth magnets can be produced. Deposits are found in Kerala, Odisha and West Bengal. But those will take time to exploit,” he added.

With China’s overwhelming dominance in rare earth materials, a crisis in the global supply chain, including in India, was imminent.