India must invest in research and innovation to find alternatives to rare earth magnets, as the current global supply crisis triggered by China’s export restrictions is unlikely to ease soon. That’s the view of Jayant Dasgupta, Former Indian Ambassador to the WTO, and Hormazd Sorabjee, Editor of Autocar India, who told CNBC-TV18 that the situation facing the Indian auto industry is serious and could escalate in the coming weeks.
“In the medium to long term, one must invest in innovation, research and development, and try to find an alternative to rare earth magnets, if that can be done at all,” said Dasgupta, warning that there is no viable near-term alternative to China’s dominance in the rare earth supply chain.
Rare earth magnets are a small but indispensable component in every electric motor, from electric vehicle drivetrains to power windows and steering systems. “Anything that has a motor has a rare earth application,” explained Sorabjee. “It’s not only restricted to EVs. Anything with a compact, powerful motor needs rare earth magnets.”
An EV normally uses up to 1–2 kg of rare earth magnets in its main drive motor alone.
China’s dominance is near-total. The country mines 70% of rare earths and produces 90% of the world’s rare earth magnets. The process is extremely capital- and energy-intensive, making it difficult for other countries to compete. “It’s like pulling out a needle from a haystack,” said Sorabjee. “It can’t be replicated.”
The impact of China’s export restrictions, in place since April 4, has been felt globally. According to Dasgupta, countries including Germany, France, the UK, the US, Japan, and South Korea have all been hit. “This is just China’s way of telling the world that, the US may impose sanctions, but with just a small gesture, we can bring an entire industry to a complete halt,” he said.
In India, the situation is especially dire. “This is a real, serious problem,” said Sorabjee. “It’s a component without which you can’t complete the car.” Inventory levels are low, and with no approvals yet received for rare earth shipments, production disruptions could start as early as next week.
In 2024, India imported 460 tonnes of rare earth magnets, almost entirely from China and had planned imports of 700 tonnes this year.
The supply crunch has emerged as collateral damage from escalating US-China trade tensions. While other countries like Germany are getting some approvals — “about 25%,” according to Sorabjee — India has received none. The reason, he believes, is geopolitical. “Right now, they can behave like this with us because we’re not a big market for Chinese products,” he said. “Whereas German automakers derive a large portion of their profits from China.”
Attempts to diversify supply from countries like Japan or Korea are not realistic. “There may be one or two very small suppliers, but everybody would queue up, and the higher-priced carmakers would obviously buy from them,” Dasgupta noted.
With no short-term fixes, both experts agree that resolving the crisis will require a high-level diplomatic effort and long-term investment in alternative technologies.
Watch accompanying video for entire discussion.