Auto dealers concerned about vehicle supplies amid rare earth magnet crisis

Mint

11 hours ago

Automobile dealers have started ringing the alarm bells about the rare earth magnet crisis affecting the supply of vehicles in the coming months, nearly 100 days after China restricted the export of the critical component.
For the first time since April when the rare earth magnet crisis began, the country's largest dealers body, Federation of Automobile Dealers Association (Fada), voiced its concerns over supply of vehicles from automakers in its outlook for the coming months.
Fada's concerns about potential supply snags come even though automakers haven't yet reported any production cuts after stocking up on the permanent magnets in March and April. However, if the Chinese curbs don't ease in the coming months, production could yet be disrupted, hurting inventories at dealerships.
Fada president C.S. Vigneshwar told Mint that automakers have not yet conveyed the full situation to dealers, which is adding to the uncertainty regarding the situation.
'We have been in touch with the automakers and industry bodies but there has been very little information conveyed about how the situation is evolving. While there is enough stock to meet demand for now, we need to know the supply situation," Vigneshwar said.
Rare earth magnets are used in the traction motors of electric vehicles along with other electronic parts of vehicles including the telemetry system, which collects vehicle data on speed, and acceleration etc.
In its near-term outlook as part of its monthly release, the dealers' body that has more than 15,000 members highlighted that component production can stall, leading to a reduction in the supply of vehicles in the coming months.
'Challenges in securing rare-earth materials have stalled component production, further constraining supply and retail volumes," the June near-term outlook statement of the dealers' body said.
In May, Fada had noted the developments around rare earth magnets but did not foresee any threat to supply of vehicles.
Most automakers in the country sell their vehicles through dealerships which are managed by third parties. Companies dispatch their vehicles directly to dealers who then sell them to customers. Any cut in production will end up impacting the dealers, which can increase wait time for customers as availability of vehicle models will be constrained.
Experts highlight that any disruption of supplies with dealerships at the current stage can dampen prospects of the industry as festive season is just around the corner.
Srihari Mulgund, a partner at EY Parthenon, notes that companies are entering a crucial phase as they begin stocking vehicles ahead of the festive season.
"Certainty regarding the supply of vehicles in the coming months will be crucial as the festive season is also coming a bit early. Preparation for the season usually begins by this time," he said.
The second half of the calendar year is usually an important time for the automakers as sales pick up around festivals like Ganesh Chaturthi, Diwali and Dusshera, among others.
In FY26, carmakers are anticipating a slower growth of about 1-2% after the passenger vehicle market grew by 2% to 4.3 million units in FY25.
On the other hand, two-wheeler sales grew 9.1% to 19.6 million units, according to data from the Society of Indian Vehicle Manufacturers (Siam). During this financial year, two wheeler players expect a 5-6% growth in the industry.
As per Vigneshwar, the inventory levels are elevated at somewhere around 55 days for passenger vehicles and just over 30 days for two-wheeler vehicles.
In May, Bajaj Auto had warned that if the rare earth magnet situation is not resolved, the auto industry will see production cuts from July onwards. Maruti Suzuki chairman R.C. Bhargava also mentioned that the country's largest automaker has rare earth magnet stock till July.
'Stocks are fast depleting. So far, 30 applications have been submitted to China, but none have received final approval. The Chinese government has said that final approvals will take about 45 days," Bajaj Auto executive director Rakesh Sharma said after the release of the company's January-March earnings.
The management reiterated the outlook to analysts from Kotak Institutional Equities during a meeting. In a 30 June note, Rishi Vora of Kotak Institutional Equities wrote that launch timelines can start getting impacted soon.
'With rare earth supply expected to tighten from July, production schedules and growth in the EV segment may face disruptions, making material sourcing and supply chain stability essential focus areas for sustaining momentum," Vora wrote after meeting the company's management.
'E-rickshaw launch plans may also get delayed if the situation is not resolved."
Mint reported on 7 July that automakers are now rushing to import fully built motors which need rare earth magnets as China continues to throttle the raw material's export. Companies have asked for a cut on import duties to manage the situation and avoid an increase in cost of vehicles.