MotoPOV | China’s Licence Raj And The Rare Earth Crisis

You can’t build a car without rare earths, or ‘Made in China’ written somewhere on it.

Magnets made with rare earth elements are used in anything with a motor in a car—from “rolling” up a window to adjusting seats and air-conditioning. In an electric vehicle, the motor cannot do without a rare-earth armature. They are cheap—the rare-earth magnets contribute less than 5% of a vehicle’s cost—but the fact India imported 540 tonnes last year shows how crucial a component they are.

Naturally, any disruption in the supply chain will upend vehicle manufacturing globally. And that’s exactly what’s happening right now. 

China, the world’s biggest producer of rare earth elements with more than 90% processing capacity, has put in place a licence regime for global suppliers in the aftermath of a trade war with the United States. The licence includes an end-use clause: the rare earths cannot be used for military purposes or routed to the US in any form.

The application process is arduous, to say the least.

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 physical 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 ship the physical documents to the rare earths supplier in Mainland China. The supplier will submit the file to the provisional government. After another round of checks, the physical documents will finally get delivered to China’s Ministry of Commerce in Beijing.

The process takes 45 days. There’s no guarantee of approval.

“There is a real issue at hand,” an auto components maker told me. “Yes, we are covered for the next one to three months but by the end of July, there will be supply issues.”

Still, this is an opportunity amid adversity.

India can very well derisk itself from the rare-earth supply chain. The tools are in place. A rare earths policy is said to be in the works, on the lines of production-linked incentive schemes to make electronics to pharmaceuticals and toys in India.

“This (rare earths crisis) is a wake-up call and not an operational challenge,” Arun Malhotra, an independent auto industry expert and former managing director of Nissan Motor Corp. in India, told NDTV Profit over the phone. “What India now needs is to de-risk itself from the supply chain concentrated in China and boost localisation, as it did after the semiconductor crisis during the pandemic.”

Clearly, an “atmanirbhar” overdrive can serve as a worthy foil to China’s “licence raj”.

Against that backdrop, here’s some essential reading on the evolving rare earths crisis:

Just 30 Days: 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.

Help Is At Hand: India’s auto industry is getting all the help it needs to tide over China’s curbs on exports of rare earth magnets, so much so that even 7, Lok Kalyan Marg, has now stepped in.

Open For Business?: China is open to Indian auto component makers securing a licence to access rare earth materials, according to people aware of the matter, even as local carmakers ramped up production till stocks last.

An Opportunity: Hindustan Zinc expects  30% of its revenue to come from mining of rare earths by the turn of this decade, according to CEO Arun Misra. The company’s forte lies in mining minerals whose processing and recovery is difficult.

The US Angle: The United States and China agreed to a preliminary plan to ease trade tensions, which could revive the flow of sensitive goods between the world’s two largest economies. While full details of the pact weren’t immediately available, US negotiators said they “absolutely expect” that issues around shipments of rare earth minerals and magnets would be resolved.

On June 11, 1955, a major crash during the ‘24 Hours of Le Mans’ at the circuit de la Sarthe in Le Mans, France, killed 82 spectators due to vehicle debris that flew in their direction.

An official inquiry held none of the drivers involved in the crash—Jaguar’s Mike Hawthorn, Austin-Healey’s Lance Macklin and Mercedes-Benz’s Pierre Levegh—as guilty. They instead criticised the layout of the 30-year-old track, which was not designed for cars as fast as those involved in the crash.

The accident was the most catastrophic incident in motorsports history, prompting multiple countries in Europe to ban racing. Switzerland only lifted the ban in 2022.

That’s all from us this week. Watch this space for more. Read more at ndtvprofit.com/auto

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