EV Launches May Stall As China Chokes Magnet Supply: Crisil Sounds Alarm

Pune: Shortage of vital rare earth magnet could decelerate Indian auto industry's vehicle production, if China’s export restrictions and delays in shipment clearances persist, Crisil Ratings said on Tuesday.

According to the credit rating agency, nearly 30 import requests from Indian companies were endorsed by the Indian government by the end of May 2025, but none have yet been approved by the Chinese authorities, and no shipments have arrived till date.

A disruption lasting beyond a month can impact electric vehicle (EV) launches, affect production and weigh on the auto sector’s growth momentum, Crisil noted.

Rare earth magnets, despite accounting for less than 5 per cent of a vehicle’s cost, are essential for permanent magnet synchronous motors (PMSMs) widely used in EVs and hybrids, as well as in components like electric power steering in internal combustion engine (ICE) vehicles.

In April 2025, China, the world’s dominant exporter of rare earth magnets, imposed export restrictions on seven rare earth elements and finished magnets, mandating export licenses.

Crisil said the revised framework demands detailed end-use disclosures and client declarations, including confirmation that the products will not be used in defence or re-exported to the US.

With the clearance process taking at least 45 days, this added scrutiny has significantly delayed approvals and the growing backlog has further slowed clearances, tightening global supply chains, it added.

India sourced over 80 per cent of its ~540 tonne rare earth magnet imports from China last fiscal, and has started to feel the impact, Crisil pointed out.

“The supply squeeze comes just as the auto sector is preparing for aggressive EV rollouts. Over a dozen new electric models are planned for launch, most built on PMSM platforms,” said Anuj Sethi, Senior Director, at Crisil Ratings.

While most automakers currently have 4-6 weeks of inventory, prolonged delays could start affecting vehicle production, with EV models facing deferrals or rescheduling from July 2025, he said.

A broader impact on two-wheelers (2W) and ICE PVs may follow if the supply bottlenecks persist for an extended period, Sethi added.

In fiscal 2026, domestic passenger vehicle (PV) volumes are expected to grow 2-4 per cent, while electric PVs could rise 35-40 per cent, albeit on a low base.

Electric 2Ws could grow ~27 per cent, outpacing overall 2W growth of 8-10 per cent. However, sustained supply tightness could soften this momentum, especially in the EV segment.

Poonam Upadhyay, director at Crisil Ratings, said automakers are actively engaging with alternative suppliers in countries such as Vietnam, Indonesia, Japan, Australia, and the US, while also optimising existing inventories.

With applications across EVs and ICE vehicles, a prolonged supply squeeze could disrupt production of PVs and 2Ws, making this low-cost component a potential high-impact bottleneck for the sector, he noted.

“In a constrained supply scenario, magnets may also get diverted to ICE models, which require fewer units, potentially impacting EV growth,” said Upadhyay.

Crisil said the government and automakers are focusing on building strategic inventories, tapping alternative suppliers and accelerating domestic assembly in the short term and reducing import dependency via rare earth exploration, building local production capacity and investing in recycling infrastructure in the long term.