Rare Earth Magnet Crunch Threatens EV Production in India
China’s export controls spark supply crisis, forcing auto industry into emergency response mode
India’s electric vehicle (EV) and broader automobile sector may face significant production disruptions as inventories of rare earth magnets are projected to deplete by mid-July 2025, warns a new ICRA report. The shortage stems from China’s tightened export controls and shipment delays, intensifying supply chain vulnerabilities.
Strategic Materials Under Pressure
The magnets in question—neodymium-iron-boron (NdFeB)—are essential for:
- Traction motors in EVs (both two-wheelers and passenger vehicles).
- Power steering motors in both EVs and conventional internal combustion engine (ICE) vehicles.
In FY2025, India imported $200 million worth of these magnets, with 85% sourced from China.
- While the trade value is modest, the strategic dependence is critical, making any disruption a serious production risk.
Echoes of the Semiconductor Crisis
Jitin Makkar, Senior VP at ICRA, likened this threat to the semiconductor shortage of 2021–22, which cost the industry nearly 100,000 vehicles in lost production.
- “The industry faces a fresh disruption. With inventories running low and no immediate alternatives, the risk to EV manufacturing is real and imminent,” he said.
Contingency Plans Face Complex Challenges
To cushion the impact, OEMs and component makers are exploring several workarounds:
- Importing fully assembled motors from China.
- Shipping rotors to China for magnet installation and re-importing them.
- Substituting rare earths with engineered materials that mimic magnetic performance without regulatory barriers.
However, these options face significant logistical, regulatory, and engineering constraints, which could delay implementation and raise costs.
Long-Term Implications and Strategic Shifts
The current crisis, while disruptive, could spur a strategic reassessment of sourcing and materials:
- Manufacturers may accelerate innovation, diversify suppliers, and invest in rare earth alternatives.
- This could also catalyze local manufacturing ecosystems, reducing dependence on China’s rare earth monopoly.
As India races to scale its EV ambitions, the rare earth magnet bottleneck underscores the fragile interdependence of global supply chains and the urgent need for resilient sourcing strategies.
India’s total imports—including both merchandise and services—rose to US $915.19 billion in FY 2024–25, up from approximately US $850 billion in the previous year. This growth underscores the country’s expanding consumption and industrial demand, while also flagging areas of strategic vulnerability.
Trade Trends and Monthly Movements
- In January 2025, imports reached US $59.4 billion, reflecting a 14.5% year-on-year increase.
- April 2025 saw total imports climb to US $82.45 billion, composed of US $64.91 billion in merchandise and US $17.54 billion in services.
- The trade deficit for April stood at US $8.65 billion, indicating a steady gap between import and export flows.
Energy Dominates Import Composition
- Energy imports—covering oil, LNG, and coal—totaled US $220.6 billion in FY 2024–25.
- Oil imports averaged 4.88 million barrels per day, with Russia supplying around 36%, reducing reliance on OPEC, whose share dropped to 48.5%.
- Coal imports fell by 8%, resulting in savings of US $7.9 billion, driven by better domestic availability and energy transition efforts.
Surge in Agricultural and Electronic Imports
- Vegetable oil imports, especially palm oil, surged:
- May 2025 saw an 84% spike in palm oil imports, reaching 593,000 tonnes, the highest since November 2024.
- Overall vegetable oil imports rose 33% to 1.19 million tonnes.
- Electronics and semiconductors remained a high-dependency area:
- India spent US $84.9 billion on electronics imports, underscoring a persistent gap in domestic manufacturing capacity.
China: India’s Largest Import Partner and Trade Deficit Source
- China accounted for 15% of India’s imports in FY 2024–25 (~US $103.8 billion), followed by the U.S. (9%), UAE (7%), and Saudi Arabia (6%).
- The trade deficit with China widened to a record US $99.2 billion, propelled by a sharp increase in imports of electronics, solar components, and batteries (up 25% YoY).
Summary Table
| Metric | Value | Period |
|---|---|---|
| Total imports (FY 2024–25) | US $915 billion | FY |
| Jan 2025 imports | US $59.4 billion | January |
| Apr 2025 total imports | US $82.45 billion | April |
| Energy imports | US $220.6 billion | FY |
| Palm oil imports | 593 kt | May |
| Trade deficit with China | US $99.2 billion | FY |
Strategic Takeaway
India’s import profile reveals a growing demand-driven economy, yet it remains strategically exposed in key sectors:
- Energy, electronics, and critical inputs like rare earths are heavily import-dependent.
- The widening trade deficit with China signals the urgent need for domestic manufacturing capability enhancement and diversified sourcing.
With consistent policy focus and targeted investments, India can leverage this data to rebalance its trade structure and fortify supply chains for a more resilient economic future.
