Key Points

The Jefferies report highlighted that several Indian companies are struggling to import magnets from China, which are crucial components in the production of EV motors.

The report warned that once the current stock of these magnets runs out, motor production could be severely affected, putting the entire supply chain at risk.

It said "Based on our conversations with Indian companies, industry is facing a challenge in importing magnets from China and EV motor production could be at risk once the existing magnet inventories get exhausted".

Federation of Automobile Dealers Association (FADA) too have echoed the sentiment and in its monthly vehicle data release on Friday said "Global supply-chain headwinds (rare-earth constraints in EV components, geopolitical tensions) may limit urban consumer sentiment and exert cost pressure."

To deal with the situation, companies are considering importing fully assembled motors from China. However, this option comes with challenges. Original Equipment Manufacturers (OEMs) would have to make major changes in their supply chains.

Additionally, vehicles might require fresh homologation approvals to meet Indian standards. This shift could also lead to a drop in domestic value addition, which is essential to qualify for the government's Production-Linked Incentive (PLI) scheme.

China had earlier, on April 4, imposed export controls on six heavy rare earth elements (REEs) and rare earth magnets. The country cited reasons like national security and international obligations such as non-proliferation.

Although these curbs are not a complete ban on exports for the auto sector, companies must now seek prior government approval before shipping these materials out of China. This adds uncertainty and delay in the supply process.

The report also mentioned that the Indian government is aware of the growing risks.

According to a Reuters report on Friday, India is in discussions with various companies to build long-term stockpiles of rare earth magnets. As part of this plan, Indian government is likely to offer fiscal incentives to promote domestic production of these crucial components.

Contrary to their name, rare earth elements, especially the lighter ones, are not actually rare in the Earth's crust. But they are spread out in low concentrations, which makes extraction and processing difficult.

The global supply chain for these elements is heavily dependent on China, which currently accounts for about 70 per cent of the world's mined REEs and roughly 90 per cent of refined production. China also produces nearly 90 per cent of the world's rare earth magnets, especially the heavy rare earths.

With China now increasing its restrictions even further, the supply chain could face more disruptions in the coming months, posing a serious threat to India's EV sector.

- ANI