Rare Earth Shortage Threatens Indian Auto Sector Output, Says CareEdge Rating 

Timely resolution of China stringent export controls on seven rare earth elements would be of utmost importance for the Indian automotive sector in 2025-26. China’s move to tighten rare earth elements exports has not only delayed critical shipments but also exposed strategic supply chain vulnerabilities in India. With 90% of rare earth elements -based magnet imports dependent on China, vehicle production - particularly in electric vehicles and premium segments—is likely to suffer unless immediate solutions are found, CareEdge Rating said in a report today

In April 2025, China imposed strict export controls on seven rare earth elements essential for manufacturing high-performance magnets used in electric motors, battery management systems, infotainment units, and brake-by-wire technologies. These include Neodymium, Dysprosium, and Praseodymium, among others. Under the new licensing regime, Chinese exporters must secure government-to-government approvals, resulting in significant shipment delays.

As of June 2025, Indian automakers have yet to receive approval for any rare earth elements shipments from China. With inventories expected to run out by July, the production of electric vehicles, high-end internal combustion engine models, and hybrid vehicles faces disruption. This comes at a time when India's EV market had been showing strong momentum—growing at a CAGR of 63% over the last five years—driven by electric two-wheelers and favorable policy support.

The report said automakers are now recalibrating production strategies, shifting focus to base and mid-range models that require fewer rare earth elements -intensive components. In the short term, many are resorting to importing fully assembled components and subsystems from China to maintain production lines. However, this tactical workaround brings increased costs due to import duties, freight charges, and rupee-dollar volatility.

India’s overdependence on China for rare earths has triggered urgent government and industry-level responses. Diplomatic efforts are underway to secure export permissions similar to those granted recently by China to top US automakers. Domestically, the government is also considering commercialising magnet-making technologies held by public sector firms and accelerating collaboration with alternative sources such as Vietnam, Australia, and the US Yet, these nations currently lack the processing capacity to meet immediate global demand.

In the medium to long term, the government aims to develop a self-sufficient rare earth ecosystem. This includes incentivising private investment in mining and processing, exploring rare earth elements reserves domestically, and promoting R&D into alternative materials. Building strategic reserves and forging global partnerships will also be critical to achieving supply chain resilience.

CareEdge Ratings notes, this supply shock is not just a logistical hurdle—it is a strategic inflection point. For India’s auto industry to stay on course with its electrification and growth goals, reducing dependence on a single geopolitical source and investing in domestic capability will be imperative.