Rare earth magnet shortage may slow India's auto sector: Crisil
'The shortage comes as India gears up for major EV launches. With limited inventory, delays beyond a month could disrupt production from July 2025, especially EV models. If prolonged, it may also impact ICE and two-wheeler (2W) production,' says Anuj Sethi, Senior Director at Crisil Ratings.
In FY26, passenger vehicle (PV) volumes are expected to grow 2–4%, with electric PVs surging 35–40% from a low base. Electric 2Ws may grow about 27%, outpacing the broader 2W segment. But supply issues could slow this momentum.
Unlike semiconductors—which have diversified supply chains—over 90% of rare earth magnet processing happens in China. During the pandemic, supplies were stable, so automakers didn't build strategic buffers. That's now changing.
According to Poonam Upadhyay, Director at Crisil Ratings, despite a make up of less than 5% of vehicle cost, these magnets are critical.
"Automakers are turning to suppliers in Vietnam, Indonesia, Japan, Australia, and the US, while managing existing stock. If shortages persist, magnets may be redirected to ICE models, affecting EV rollout,' she added.
In response, both government and automakers are working on short- and long-term solutions. These include building strategic inventories, securing alternate suppliers, expanding domestic assembly under incentive schemes, and investing in rare earth mining and recycling. However, the key factor to watch is how quickly China clears the export approvals.
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