China's clampdown on rare earths has prompted India to explore options

It accounts for just 1 to 3 per cent of the total bill of material for an electric vehicle (EV). That’s the reason auto companies forked out a mere ₹306 crore on its imports last year. But without this small piece of magical component, auto companies cannot produce and assemble any electric vehicle, be it a car or a two-wheeler. Nor can companies like Apple Inc make hearables like airpods or drone makers their light-weight drones. 

Not a surprise then that shortage of rare-earth magnets has turned into a national crisis. China, which makes most of the medium and heavy rare-earth magnets for the world and controls its supply chain—  imposed restrictions on its exports a couple of months ago. It’s more than that for India — China completely stopped the rare-earth supplies to Indian vehicle companies since April 4 and is doing the same in other segments as well. China wants to prevent the dual usage of rare earth, preventing diversion of magnets by any country to strategic defence requirements.   

Crisis gets deeper 

In the last few weeks, many government departments have had a series of  meetings with stakeholders to find a way out of the imbroglio.  

 

In a signal that things were not looking up with respect to rare earth magnet, Bajaj Auto Managing Director Rajiv Bajaj said last week that electric scooter production had already been cut by half in July. The company may need to close down its EV factory in August, adversely impacting its financials.  Siam — the association of auto companies — has already petitioned the government to reduce the customs duty on electric motors by half to 7.5 per cent. While earlier most companies were assembling electric motor in India by installing the imported magnet from China, the only option before them is to import full electric motor from China. Without a duty cut, production cost of vehicles will skyrocket.  

As for Apple, which started assembling airpods at a new Foxconn plant in Teleganna recently, it was forced to close the factory for two weeks in June as China stopped magnet supplies. 

The Cupertino-headquartered firm has now got a temporary reprieve by arranging for supplies from Japan. While it is looking at other sources like Uzbekistan to meet the requirement, it has conveyed to the government that this would only increase the cost of production of airpods and make it globally uncompetitive. 

All about control 

Experts believe that China can leverage rare earth magnets as a weapon globally, and with India in trade. China controls 90 per cent of the global production of rare earth magnets and more than 70 per cent of rare earth elements which go into the making of  magnets. 

It all started in the 1980s when China identified rare earths as a strategic area of focus—leveraging its low labour costs and rules on environment by building the entire process from mining to extraction and separation of individual rare earth elements. And then it used technology from Japan and the US to make low-cost rare earth magnets at rock bottom price which no one else could match. The countries which dominated the mining and manufacturing of these magnets so far, including the US, Japan and Europe, gradually withdrew unable to compete. 

For the first time, it used rare earth as a trade weapon way back in 2010. It stopped supplies to Japan for months over a maritime dispute between the two countries.   

Rising demand 

Some 15 years later, China is in the game again with rare earth as a trade weapon. Global demand for rare earth magnets is expected to double to 600,000-650,000 tonnes by 2035. In India, it could go up four to six times to hit 2,000-3,000 tonnes in the same period. And, China is the best bet.  

McKinsey, in a study released a few days ago, said that even in 2035, rare earth supply would be 30 per cent lower than the demand. Adams Intelligence says that by 2035, China’s own demand for rare earth and magnets will go up so sharply (400,000 tonnes) that it may stop exporting altogether. 

Japan is a model to look at.  After the 2010 episode, it reduced its dependence on China to 60 per cent of its requirement of magnets. This could go down further to 50 per cent this year.   

According to people in the know, Japan has diversified sources. Two, it is stockpiling-creating an inventory of 18 months of critical rare earths against any potential restrictions. Three, it has an efficient strategy for recycling. Also, it is developing alternative technologies like magnets which do not require heavy rare earths. 

India action 

Stakeholders in India are also scouting for solutions. For instance, Ola Electric and TVS are working on powering their two wheelers with ferrite magnets, which are heavier but are being tweaked to provide the same efficiency as a rare earth motor. Ola plans to launch ferrite magnet motor- powered products by the third quarter of FY2026, according to executives. Ather Energy is betting on using light rare earths which are not part of the export control regime and experimenting to ensure they match the same specifications on torque and power. 

The government has also put together ambitious plans — most of them mid or long-term solutions. The last Budget earmarked ₹18,000 crore under the Critical Mineral Mission for a seven-year band, to make India self-sufficient in the area. 

In April 2023, the government said that India had the fifth largest rare earth reserves in the world. However, extraction costs make these minerals  expensive. Heavy rare earth elements, which go into EVs,  are not available in extractable quantities.

In a recent interaction with Business Standard, Geologial Survey of India director general Asit Saha, said GSI was working on 100 rare earth projects. Any auction could take around three years. 

That’s a long haul 

The government has also mooted a plan for a production linked incentive (PLI) scheme for rare earth magnet production – so that Indian companies can get subsidy to neutralise the cost disability against China. 

But it’s hard to match up to China, where the sale price is not even 5 per cent more than the cost of production cost. A new PLI can take months to  take off. 

Tarun Mehta, CEO of Ather Energy, said: “Even if the price is slightly higher, we will surely prefer to buy from India.’’

India is also looking to broaden its supply chain–talks are on with Japan, Australia, the US,  Brazil and even Uzbekistan for collaborations and technology transfers.   

Some companies have also promised to manufacture rare earth magnets in India -Hyderabad based Midwest Advanced funded by the government is  one such.

 

At this point, however, several sectors and companies are staring at a  crisis that’s hard to address immediately. 

Key metals and their usage

• Neodymium: In electric motors for e2w and e4w, in speakers and microphones, in drones, defence radar systems, missile guidance, and in wind turbines 
• Cerium: In catalytic convertors, glass polishing for glass and sensors
• Dysprosium: Impr­oves heat resistance and used in high performance EVs, drones, jet engines and for durability of  hearables
• Praseodymium: Often alloyed with neodymium to improve magnet performance in EVs, hearables, wearables, and drones
• Europium and terbium: Used for phosphorus in LED lights and screens
• Yttrium: Found in high performance camera lens or sensors
• Gadolinium: In sensors or medical grade wearables for precise measurements