China Rare Earth Export Ban: India Auto Sector Has One Month To Secure Fresh Supply

Indian automakers have exactly one month to secure fresh supply of rare earth magnets from China, a lack of which can bring vehicle production in the world’s third largest automotive market to a grinding halt.

China’s ban on export of rare earth magnets on April 4 meant that India’s auto parts makers and original equipment manufacturers had 90 days of supplies, people aware of the matter told NDTV Profit. The ban also meant that an Indian entity now has to apply for a fresh licence to access the rare earth stash.

The process for a new licence takes at least 60 days, and there’s no guarantee of approval, one of the people cited above said. They requested anonymity citing the sensitive nature of the situation at hand.

Thirty days of supply versus 60 days of licence—that’s clearly a risk.

China controls 90% of the global processing capacity for rare earth magnets, which are used in appliances to automobiles and aerospace. When US President Donald Trump first imposed tariffs on April 4, Beijing turned off this tap as part of its retaliatory move.

Now, China requires importers to submit an application detailing the end use of the rare earth magnets, with assurances that the materials won’t be used in military operations or routed to the US in any form. The process has to be initiated by the importer, then endorsed by Chinese authorities before being submitted for final clearance. An approval is not guaranteed.

Forget approval, the application process itself is arduous, people in the know said.

An Indian supplier has to initiate the process for a new licence via the Directorate General of Foreign Trade of the Union Ministry of Commerce and Industry. A file with the application and necessary documents will then go to the Ministry of External Affairs. Upon further whetting, this file will be submitted to the Chinese embassy in New Delhi.

At this juncture, if everything is in place, the embassy will contact the Chinese supplier of rare earth magnets in Mainland China. This supplier will then submit the licence application to the Ministry of Commerce, People’s Republic of China.

The process in China itself takes 45 days, the second person said. There’s no guarantee of approval. Thirty such applications have been submitted so far. None have been approved.

OEMs and industry bodies SIAM and ACMA are now in talks with the government to speed up the licence process at least at the India level, the second person said. A 50-member team was supposed to go to China this week to figure out the process, but that hasn’t happened. A future timeline for the visit wasn’t immediately available.

To be sure, it’s not yet time to panic.

“The current situation remains stable and manageable,with automakers and suppliers actively exploring alternatives such as product mix adjustments and alternative sourcing,” Gaurav Vangaal, associate director – light vehicle production forecasting for India at S&P Global Mobility, told NDTV Profit over the phone. “However, continuous monitoring is essential, as a prolonged disruption could significantly affect production lines.”

Still, electric two-wheelers are squarely in the line of impact because their electric motors cannot do without a rare earth magnet. Additionally, a lot more electric scooters are sold in India than electric cars.

“The rare earth situation is difficult one. Supplies and stocks are depleting fast,” Rakesh Sharma, executive director at Bajaj Auto, said during a post-earnings conference call on May 29. “If there’s no relief, production will be seriously impaired in July. That’s the current case for the auto industry.”

TVS Motor Co. echoed the opinion.

“While EV sales continue to grow steadily, disruptions in the EV supply chain, particularly concerning magnet availability, are expected to pose challenges in the short- to medium term,” according to an exchange filing on June 1.

Bajaj Auto and TVS Motor are the largest electric two-wheeler makers in India. The electric powertrain cannot do without rare earth magnets. There’s no workaround.

The local carmakers are relatively better placed.

Maruti Suzuki India Ltd., the country’s largest carmaker by volume, has submitted an import application for rare earth magnets, Senior Executive Director Rahul Bharti said during a media call on June 2, but refused to give details until it received a response.

“It is not a restriction. It is an endorsement of end use. In case there is an issue, we will inform all our stakeholders, including the stock exchange,” he had said then.

Tata Motors Ltd., the largest electric car maker in India, doesn’t see an immediate impact.

“There is dependency on rare earth elements in both the ICE and EV worlds. As far as we are concerned, there is no immediate impact…,” Shailesh Chandra, managing director of Tata Motors’ PV and EV business, said on the sidelines of a launch event for the Harrier.ev on June 3.

“SIAM and ACMA are in constant discussions with the government. We are getting all kinds of support…hope this gets resolved fast.”