The Indian electric vehicle (EV) industry is facing a significant challenge due to a shortage of rare earth metals, which are essential components in the production of electric vehicles.
The shortage has been caused by China’s restrictions on rare earth exports, which were introduced in April, just days after US President Donald Trump announced reciprocal tariffs on Chinese goods.
As a result, Indian companies like Bajaj Auto, a leading manufacturer of electric scooters, have been forced to reduce their production.
According to Rakesh Sharma, executive director of Bajaj Auto, the company manufactured just 10,824 units of its popular electric scooter, the Chetak, in July, compared to 20,384 units during the same period last year.
The shortage of rare earth metals has been a major constraint, forcing the company to almost halve its output. However, Bajaj Auto has been working to redesign certain motors to use light rare earth magnets and has been reworking its supply chains to cater to its needs.
The shortage of rare earth metals is an industry-wide problem, and several other companies are also facing similar challenges.
Vigneshwar Chittur Selvakumar, president of the Federation of Automobile Dealers Association (FADA), is “deeply concerned” about the impact of the shortage on the automobile sector. “We control around 80 percent of sales of vehicles, and any dip in production will affect our business badly,” Selvakumar said.
Rare earth metals are a combination of 17 metallic elements that are found in abundance in China, which has the world’s largest reserves of rare earth elements, estimated at 44 million tonnes.
China also dominates 90 percent of rare earth elements processing capacity, making it a critical player in the global supply chain.
Apart from EVs, rare earth metals are also used in smartphones, computer screens, and other electronic devices. They are also essential for defense equipment like radar and guidance systems, as well as medical machines such as Magnetic Resonance Imaging (MRI) systems.
The shortage of rare earth metals comes at a time when India’s EV sector is gaining momentum. Sales of electric vehicles crossed 2 million for the first time in 2024, up 24 percent from 1.6 million vehicle sales in 2023.
Two-wheelers lead the charge, with sales of 1.2 million units last year. Sales of electric cars are also on the rise, with more than 100,000 electric cars sold in the financial year ending March 31, 2025. Tesla has also joined the fray, launching its Model Y in India in July.
However, the shortage of rare earth metals has raised concerns about the sustainability of the EV sector’s growth. Several EV companies have refrained from speaking on the rare earth crisis, citing concerns about losing customers and share value.
“The industry is still in a fledgling state, and companies fear that they might lose customers and also their share value if they concede to rare earth shortage as the potential buyers might be too apprehensive to purchase the vehicles,” said Nilanjan Banik, an economics professor at Mahindra University.
The shortage has also affected the television industry, where rare earth magnets are critical in television manufacturing, particularly for speakers.
“As the country remains heavily reliant on imports for these components, this presents a clear challenge,” said Arjun Bajaj, director of Videotex, a television manufacturer.
“We currently have adequate stocks for the current season, but our focus is also to find an alternative solution, and the industry is actively exploring alternatives like ferrite magnets, though matching the performance of rare earth magnets will require continued research and technological upgrades.”
In a recent development, China announced that it would ease export restrictions on rare earths to India after talks with Indian Foreign Minister S Jaishankar in Beijing.
However, experts have called this a “tactical gesture,” given the complex dynamics of the India-China relationship. India’s trade deficit with China hit a record $100 billion in the last financial year, and Beijing has also openly backed India’s arch-nemesis Pakistan in a recent clash between New Delhi and Islamabad.
India holds the fifth-largest rare earth elements reserves, with 8.52 million tonnes, but contributes less than 1 percent of the global rare earth mining.
The country faces stiff challenges, including limited infrastructure, technological issues, and regulatory hurdles, as well as environmental concerns.
Vishwas Dass, a Delhi-based policy expert, said that the current disruption must be used to accelerate domestic exploration and offer incentives for refining capabilities and forging mineral alliances with trusted nations.
The Geological Survey of India (GSI) has already started exploration in the states of Assam and West Bengal. “The exploration is part of India’s long-term strategic vision to achieve self-reliance in key sectors and aligns with the government’s policy of securing domestic mineral supplies for further technological and industrial needs,” Asit Saha, director general of GSI, said.
However, processing rare earth metals will be a tricky issue for India. Mahindra