Mint Primer: Can govt aid EVs amid rare-earth magnet crunch?

What’s the rare earth magnet issue?

Rare earth magnets are powerful magnets made from alloys of 17 different rare earth elements, primarily neodymium or samarium. They are used in applications like automotive manufacturing, phones, missiles and electronics. Over the last three decades, China has developed expertise in this and today makes 90% of the world’s rare earth magnets. From April this year, China started placing curbs on exports of the magnets following its trade tariff face-off with the US, forcing all importers to apply for licences. The process takes 60 days, without any guarantee of approval of licence.

Also read: China’s rare earth exports jump ahead of US trade negotiations

Why is the automobile industry worried?

One of the most important uses of rare earth. magnets is in powering electric vehicles. These vehicles get power from the battery. This power goes to a coil of wire (a motor) with special rare earth magnets. The magnets help spin the coil. The spinning coil is connected to an axle, which turns the wheels of the car, making it move. Rare earth magnets play an important role in this process. The magnets also run key car components such as automatic transmission and the power steering system. EVs are more vulnerable since they use 3-5 kg of such magnets while traditional cars do with around 100 grams.

Are these magnets the only challenge to automakers?

No. If today’s challenge is rare earth magnets, tomorrow it could be lithium or cobalt, critical for EVs again. China controls over 65% of global lithium refining. In their 2024-25 annual report, Tata Motors and JLR highlighted risks to the EV business, including potential production delays, as a result of China’s stranglehold over the EV supply chain.

Also read: Trump says Xi agreed to restart the flow of rare earth minerals. Why are rare earths important for Chinese economy?

So, what can the Indian industry do?

The industry will hope diplomatic efforts will resolve the supply problems. State-owned IREL, which caters to defence, could step up to make rare earth magnets commercially. A Production Linked Incentive (PLI) scheme for domestic manufacturing will help too. Nonetheless, it could take several years to build local supply chains for rare earth magnets and PLI may not solve the problem right away. When existing magnet inventories get exhausted, EV motor production could be at risk, noted investment bank Jefferies.

In the long term, what are India’s options?

The rare earth magnet supply disruption is a stark reminder of the urgent need to reduce reliance on imported critical components—especially amid tariff conflicts and geopolitical uncertainties. An aggressive EV push without a stable local ecosystem exposes the industry to risks. Until domestic production of essential materials is established, integrating hybrid technologies, biofuels, CNG/LNG and hydrogen is a more resilient approach, said experts. Over-dependence on China is a vulnerability to be addressed.

Also read: China’s rare earth export curbs are India’s wake-up call