Key Points

In April, China imposed stringent export controls on seven rare earth elements (REEs), commonly used in producing high-performance magnets, disrupting global supply chains.

India, which relies heavily on Chinese REE imports, faces potential production curtailment across the automotive sector with the gradual depletion of older inventory, said the report by CareEdge Ratings.

"India’s rare earth element crisis is not merely a supply chain disruption but a strategic wake-up call. This crisis underscores the perils of over-dependence on a single geopolitical actor for critical inputs,” said Madhusudhan Goswami, Assistant Director, CareEdge Ratings.

China controls 70 per cent of REE production and 90 per cent of processing.

Delays in REE shipments for Indian auto OEMs may impact electric, Internal Combustion Engine (ICE), and hybrid vehicle production starting in July 2025, particularly higher-end models that depend on REE-based technologies.

"Automakers might need to shift focus to mid-range or base models to address supply disruption. However, China’s recent decision to temporarily allow REE exports to top US automakers offers hope for resolving the impasse for Indian companies as well," said the report.

Apart from pursuing China through diplomatic channels, India is also considering the commercialisation of magnet manufacturing technologies currently held by select public-sector entities, and exploring alternative suppliers like Vietnam, Australia, and the US.

However, these sources currently lack sufficient processing capacity.

In the short term, Indian automakers are expected to resort to importing fully assembled components and sub-systems from China to mitigate the rare earth magnet shortage.

This tactical shift aims to maintain production continuity while domestic and alternative sourcing strategies are being developed, the report said.

In the medium to long term, India aims to build a self-reliant REE ecosystem through domestic exploration, private sector incentives, R&D in REE alternatives, and strategic international partnerships.

"Strategic reserves, public-private R&D, and global partnerships must converge into a coherent national strategy," Goswami said.

- IANS