Rare Earths Are the New Oil: Can India Build Its Own Supply Chain?

India’s automobile industry, particularly the fast-growing electric vehicle (EV) segment, is facing fresh headwinds as global supply chain disruptions threaten the availability of rare earth metals — a critical component in EV manufacturing. According to the Federation of Automobile Dealers Associations (FADA), this supply risk could have a direct impact on vehicle production and retail sales in the near term. To add perspective, the EV share in India stood at 4.1% in May 2025, up from 3.5% in April and a significant rise from 2.6% in the same month last year

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Rare earth elements (REEs), such as neodymium and dysprosium, are essential for manufacturing permanent magnets used in electric motors, particularly in battery electric vehicles (BEVs) and hybrid systems. These magnets power everything from drivetrain components to cooling fans and infotainment systems.

China currently dominates the global production and processing of rare earth metals, controlling over 85% of the global supply. Recently, the country has imposed stricter export regulations on certain REEs, citing national security and environmental concerns. While not an outright ban, the curbs have raised concerns among automakers globally, including in India, where most EV manufacturers rely on imported components or raw materials from Chinese suppliers.

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Speaking on the May 2025 vehicle retail data, FADA CEO Saharsh Damani said, “If the supply situation for rare earth materials doesn’t improve, we could see production slowdowns that may impact retail sales shortly.” Although current retail deliveries remain largely unaffected, the potential bottleneck in upstream supply chains could disrupt assembly lines, delay vehicle launches, and reduce the availability of certain models — especially in the electric and premium hybrid categories.

The situation is particularly concerning for domestic players like Tata Motors, Mahindra & Mahindra, and JSW MG Motor, who are actively expanding their EV portfolios. While some automakers have localised battery assembly or motor casing, the rare earth magnets within electric motors are still largely dependent on global supply networks.

The timing of this supply chain concern is notable. In May 2025, the EV share of total passenger vehicle sales in India crossed the 4% mark for the first time, according to FADA. The shift is driven by improved battery performance, wider charging infrastructure, and increasing consumer acceptance of electric mobility. However, sustaining this momentum without a reliable supply of key materials could prove difficult.

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Moreover, with the Indian government pushing for wider EV adoption through state-level incentives, any global supply hiccup may undercut national electrification targets. Local suppliers, while rapidly growing, are yet to develop the scale or processing capabilities needed to fully meet industry demand for REE-based components.

In response to the growing risk, several original equipment manufacturers (OEMs) are exploring alternative technologies such as induction motors or switched reluctance motors that do not rely heavily on REEs. However, these are still in early stages of deployment and may not match the efficiency or compactness of current magnet-based systems.