The year 2025 delivered a stark geopolitical lesson to India's automobile industry, one centered on a little-known but vital component: rare-earth magnets. When China, the world's dominant supplier, imposed export restrictions in April 2025, it triggered a crisis that forced a fundamental reevaluation of supply chains from corporate boardrooms in Mumbai to policy halls in New Delhi.
The Shock to the System
For nearly a month after China's April 2025 ban, many Indian automakers assumed the move was temporary. However, Beijing's steadfast refusal to relax export licensing sent a chilling wave through the sector. The vulnerability was profound because China controls about 60% of global rare-earth mining and nearly 90% of the refining and processing needed to create these magnets, which are essential for electric vehicles, renewable energy systems, and consumer electronics.
The crisis was a wake-up call, revealing how one of India's most critical manufacturing sectors could be crippled. The alarm bells grew louder when Beijing also restricted exports of automotive chips from Nexperia, a European arm of China's Wingtech Technology. With no domestic semiconductor supply, this secondary shock hit home after major suppliers like Bosch flagged potential operational impacts.
"The one question on everyone's mind will be—what will China dominate next?" remarked Abhay Tilak, Director of the Indian School of Political Economy in Pune, highlighting the pervasive anxiety within manufacturing hubs in Tamil Nadu, Delhi-NCR, and Pune.
Corporate Scramble and Strategic Silence
The rare-earth crunch forced immediate and disruptive adjustments. Bajaj Auto warned of a potential month-long halt to EV production, Ather Energy anticipated a 7-day dispatch hit, and Maruti Suzuki reportedly staggered production of its new e-Vitara. For the first time, both Tata Motors and Jaguar Land Rover cited supply chain issues as a key risk in their annual reports.
Yet, navigating the crisis has become a closely guarded competitive advantage. When asked how Mahindra & Mahindra ensured production continuity, Rajesh Jejurikar, Executive Director of its Auto & Farm Division, stated on 27 November that such information was proprietary. "How we have managed to do it is a competitive input," he said, emphasizing the company's focus on derisking supply chains.
Behind the scenes, a technological pivot is underway. Companies are actively exploring alternatives to heavy rare-earth magnets, which were the target of China's restrictions. Ather Energy and Bajaj Auto have informed investors they are looking at light rare-earth alternatives. More radically, some are moving towards rare-earth-free solutions.
Ola Electric's Bhavish Aggarwal noted their rare-earth-free motor development, started over a year prior, was now proving crucial. Bajaj Auto's Executive Director Rakesh Sharma admitted on 7 November that the company "stumbled" on the crisis and is now broadening its supply chain, including evaluating ferrite magnet motors for scooters.
Auto component suppliers are leading the engineering charge. Bosch India's MD, Guruprasad Mudlapur, confirmed on 11 November they have non-heavy rare-earth magnet motors ready and are exploring non-ferrous options. Similarly, Sona Comstar's Vivek Vikram Singh stated they have shifted to light rare-earth designs and successfully validated a rare-earth-free Ferrite Assisted Synchronous Reluctance Motor.
Policy Push and Long-Term Vision
Recognizing the systemic risk, the Indian government has stepped in with both short-term support and a long-term vision. On 26 November, the Union Cabinet approved the ₹7,280-crore Rare Earth Permanent Magnet (REPM) scheme. This package aims to incentivize the private sector to establish five new manufacturing plants within two years, with sales-based incentives for five subsequent years. The goal is to boost India's annual production capacity from the current 1,500 tonnes (solely from state-run IREL) to 6,000 tonnes.
Officials see this as only an interim fix. The government has also urged automakers to invest in research to determine if the industry can move away from rare-earth magnets entirely, a push likely influenced by the technology's significant environmental footprint. This two-pronged strategy reflects a pragmatic approach to a complex problem.
The crisis also prompted a pragmatic policy adjustment: the government relaxed strict localization rules for e-trucks under the PM E-Drive scheme. The deadline to stop imports of rare-earth magnet-laden traction motors for certain e-trucks was extended from 1 September 2025 to 1 March 2026.
As 2026 begins, Indian automakers are pressing ahead with new launches, but with a hardened resolve. The twin scares of rare earths and semiconductors have indelibly underscored the critical need for diversified, resilient supply chains. The race to implement effective China+1 strategies is now the defining challenge for India's automotive future.
