India's EV Sector Stumbles Amid China's Rare Earth Supply Crunch

Indian EV companies face severe disruptions as China's restrictions on rare earth metals threaten motor production. With import challenges and supply chain risks increasing, companies contemplate alternatives like importing assembled motors, risking domestic value loss. Discussions on long-term stockpiles and fiscal incentives offer potential solutions to this looming crisis.

Indian electric vehicle (EV) manufacturers are grappling with significant challenges due to China's restrictions on rare earth metal exports, a Jefferies report reveals. These restrictions have caused a bottleneck in the importation of magnets, which are vital for EV motor production, putting the supply chain at risk.

Once current stocks of these magnets are depleted, motor production could halt, jeopardizing the sector. The Federation of Automobile Dealers Association (FADA) has confirmed such constraints, noting that these global supply-chain issues could dampen urban consumer sentiment and escalate costs. Companies are considering importing fully assembled motors, but this poses logistical and regulatory challenges.

The situation may necessitate new homologation approvals and undermine local value addition, essential for the Production-Linked Incentive (PLI) scheme. Despite the absence of a total ban on auto-sector exports, China's policy changes introduce delays and uncertainty. Meanwhile, India is eyeing long-term solutions, including building stockpiles and incentivizing local magnet production.

(With inputs from agencies.)