Chinese Rare Earth Magnet Shortage: Will Your Favourite Car Cost You Way Higher Now?

A global shortage of rare earth magnets is beginning to impact India’s automotive sector, resulting in concerns over production disruptions and the possibility of price hikes of vehicles. The development comes amidst China’s decision to tighten export regulations on key rare earth elements used in the production of magnets. These magnets are critical components in electric motors, steering systems, sensors, and other advanced automotive applications.

With Indian carmakers heavily dependent on Chinese suppliers, the move has exposed a strategic vulnerability in the supply chain.

Also Read: Will Your EVs Be Delayed? Indian Automakers May Halt Production by July Over Rare Earth Magnet Shortage | Republic World

As Srikumar Krishnamurthy, Senior Vice President & Co-Group Head, Corporate Ratings, ICRA Limited, puts it, “Given that China accounts for around 90% of the overall supply for rare earth magnets, the curb on export of the same by China can have material implications for the EV industry. The implications could include inflationary pressures (led by higher cost for rare earth magnets in the backdrop of shortage) or even disruption in production schedules in absence of a seamless supply of the same. While OEMs are evaluating options to reduce dependence on the supply of rare earth magnets, finding immediate alternatives is going to be challenging."

China disruptive move

In April, Beijing imposed new licensing requirements on the export of certain rare earth materials, including neodymium and samarium—both essential for high-performance magnets. This has already started delaying shipments and compelling Indian companies to scramble for alternatives.

Although India holds significant rare earth reserves—estimated at around 6.9 million tonnes—most of these remain untapped due to limited processing infrastructure and technological capability.

Indian automakers sound the alarm

As per media reports, the Society of Indian Automobile Manufacturers (SIAM) has flagged the situation as “critical,” warning that if export clearances from China do not resume soon, some companies could face production halts by the end of June.

R.C. Bhargava, Chairman of Maruti Suzuki told Republic Business that while there is no impact on the company's production schedule, it can face challenges if the licenses are not issued soon. According to him, “Car companies have submitted applications to the Chinese govt for grant of licence to export rare earth magnets. No reason to believe they will not be approved. Any delay in approvals may result in production cuts.”

When asked if there will be any impact on vehicle prices, Bhargava categorically asserted, “Shortage of components may disrupt production in the near term and has nothing to do with vehicle prices.”

Meanwhile, Reuters has reported that Maruti Suzuki has cut near-term production targets for its maiden electric vehicle e-Vitara by two-thirds because of rare earths shortages. The country's leading carmaker, which had earlier said it had not seen any impact yet from the supply crisis, now plans to make about 8,200 e-Vitaras between April and September, as against the previous target of 26,500 units, according to a company document seen by Reuters.

Government steps in

Recognizing the urgency, the Indian government is reportedly in talks with Chinese counterparts to fast-track approvals. At the same time, the Ministry of Heavy Industries is understood to be working on a policy package that would incentivize domestic manufacturing of rare earth magnets under the Production-Linked Incentive (PLI) scheme.

Earlier this year, India also launched the National Critical Minerals Mission (NCMM), aimed at boosting domestic capabilities in mining and processing strategic resources, including rare earths.

Will prices move upwards?

As per industry analysts, the answer depends on how long the current disruption lasts. If the bottlenecks persist beyond a few weeks, automakers may be compelled to pass on the additional costs to consumers—especially for electric and hybrid models. Furthermore, the increased cost of sourcing from alternate markets like Germany or Japan, combined with air freight expenses, could squeeze margins.

According to Puneet Gupta, Director of India & ASEAN Auto Market at S&P Global Mobility, “Should the Rare Earth Element (REE) crisis extend beyond July, the industry may witness production disruptions, prompting OEMs to first taper market incentives. Subsequently, partial price hikes could follow, driven by rising logistics costs and growing strain in the demand-supply dynamics—potentially escalating input costs at the component level.”