Eicher, Maruti to TVS Motor: Auto stocks jump up to 2% on reports India may turn to Australia for rare-earth magnets

Auto stocks, including Eicher Motors, TVS Motor Company, and Maruti Suzuki, jumped up to 2% in Wednesday's trade, even as frontline indices remained range-bound. The strength in auto shares followed reports that India is looking to Australia as an alternative source for rare-earth magnets, aiming to reduce its dependence on China, which has imposed restrictions on these critical materials used in automobiles, defence, semiconductors, and other industrial products.

Shares of Eicher Motors, TVS Motor Company, and Maruti Suzuki India rose by up to 2% intraday. Other constituents from Nifty Auto index such as MRF, Mahindra & Mahindra, and Bosch also rebounded from their intraday lows and were trading in the green.

Sources told CNBC-TV18 that India is considering ramping up imports of rare-earth materials from Australia while also boosting domestic production under the National Critical Minerals Mission.

Initiatives may include scaling up output, promoting recycling through circular economy models, and exploring support for mining beyond the existing Production Linked Incentive (PLI) scheme. From June onward, all mining operations will also be required to test their waste material for traces of critical minerals, the report stated citing the above sources.

In April, China imposed restrictions on the export of seven key rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. These elements are essential in producing magnets like neodymium iron boron (NdFeB) and samarium-cobalt (SmCo), which are used in various applications, including EVs. 

While Washington had anticipated a rollback of these April controls following a 90-day tariff reprieve agreement in mid-May, U.S. officials indicated after trade talks in London last week that Beijing may soon ease rare earth export limits.

China remains the dominant force in the global critical minerals supply chain, accounting for roughly 60% of rare earth production and nearly 90% of processing.

Since Beijing imposed these restrictions, India has been actively responding through diplomatic channels—including discussions led by the Indian embassy—and by diversifying supply chains. These efforts include sourcing from countries like Australia, increasing local production through Indian Rare Earths Ltd., and fostering innovation in the private sector.

Earlier, Commerce and Industry Minister Piyush Goyal had called China's rare earth export restrictions a global "wake-up call," highlighting the risks of over-reliance on a single supplier.

India's low EV penetration shields the auto sector from supply shock

Despite India being heavily dependent on China for rare-earth magnets—currently importing nearly 80% of its requirement—the impact on auto stocks has remained limited. This is due to over 95% of vehicles sold in India are still powered by internal combustion engines (ICE).

Rare-earth metals are primarily used in hybrid passenger vehicles and electric two-wheelers. However, EV adoption in India is still at a nascent stage, with penetration at just 7% for two-wheelers and 3% for passenger vehicles, according to Nuvama Institutional Equities.

Although electric vehicle (EV) sales have grown at a strong compound annual growth rate (CAGR) of 25% between FY23 and FY25, this growth comes off a low base. Therefore, even if sales slowdown, the overall impact on the Indian auto sector is expected to be limited.

Most EVs use Permanent Magnet Synchronous Motors (PMSMs), which rely on rare-earth magnets to maintain a stable magnetic field—especially under high temperatures. The use of PMSMs is significantly higher in EVs compared to hybrid or ICE vehicles.

According to the report, the average rare-earth magnet usage per vehicle is about 0.8 kg for electric vehicles, 0.5 kg for hybrid vehicles, and only 0.1 kg for ICE vehicles. Thus, the impact of Chinese export restrictions will be highest on electric passenger vehicles, followed by hybrid passenger vehicles, and then electric two-wheelers. Conventional ICE vehicles will face minimal impact.

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