India’s electric vehicle (EV) revolution faces an acute challenge: a global shortage of rare earth elements—and particularly rare earth magnets—which threatens to stall growth, disrupt supply chains, and weaken aspirations to become a clean mobility leader. There is an urgent need for alternative solutions, policy reforms, and technology innovation to ensure the sector remains resilient amid geopolitical shifts.
EV Industry Growth and Market Dynamics
India’s EV market is expanding rapidly across all vehicle categories—from electric 2-wheelers (e-2Ws) and electric 3-wheelers (e-3Ws) to passenger vehicles and commercial EVs. In FY 25, 8.3% (~2 mn) of the Auto Retail sales were EV as compared to 6.6% in FY24. We anticipate this to reach 30–35% by FY30, adding 14 mn EV, a sevenfold increase.
The government’s PM E-DRIVE scheme accelerates this adoption through targeted subsidies and demand incentives for e-2Ws and e-3Ws on a pan-India basis, including rural and semi-urban areas. The scheme allocates Rs. 2,000 crores for EV charging infrastructure installation across the country, addressing critical range anxiety concerns.
Understanding Rare Earths and Their Role in EVs
Rare earth elements such as neodymium and dysprosium are vital in manufacturing high-strength permanent magnets essential for electric motors, energy-efficient propulsion systems, battery packs, steering systems, and hybrid vehicle components.
Rare earth magnets are critical across all EV categories—from the compact motors in e-2Ws and e-3Ws to the powerful motors in passenger EVs and commercial vehicles. Each EV typically contains between 1 and 2 kilograms of rare earth magnets, making continuous supply critical to sustained production across the entire EV ecosystem.
India’s current rare earth supply chain reveals a critical dependency on imports despite possessing significant domestic reserves. According to government data, India’s rare earth imports have risen substantially from 1,848 tonnes in FY 20 to 2,270 tonnes in FY24, marking a 23% increase over five years. This increasing demand underscores the accelerating consumption driven by the EV and renewable energy sectors.
In FY24 China accounted for 65% of total imports, followed by Japan & Hong Kong accounting for 25%. Critically, China currently controls approximately 70% of the world’s rare earth mine production and a staggering 85–90% of global refining capacity, with domestic output reaching 270,000 metric tons in 2024, up from 255,000 metric tons in 2023.
The dependency on China becomes even more acute for rare earth magnets, particularly Neodymium-Iron-Boron (NdFeB) magnets essential for EV motors. This near-total reliance on Chinese sources for finished magnet products poses a significant supply chain vulnerability.
Four Indian companies—DE Diamond, Hitachi, Continental India, and Jay Ushin—have recently received licenses to import rare earth magnets from China, signaling some relaxation in Beijing’s restrictions. However, these import licenses come with stringent conditions, including bans on exporting Chinese-origin magnets to the US or for defence purposes, further constraining India’s strategic flexibility.
The Global Shortage: Root Causes and Immediate Impact
The rare earth shortage, intensified by Chinese export restrictions and supply chain bottlenecks, began impacting the Indian automobile sector by early 2025, affecting manufacturers across all EV segments. China’s tightening of export rules, including new licensing mandates introduced in 2024, has severely constrained global supply and raised serious concerns over supply security. For Indian EV manufacturers, this has led to:
- Delays in launching new models across categories
- Reduced production targets and scaled-down output
- Price increases up to 8% on certain EV models across multiple segments.
- Deferred sales and stock shortages, particularly affecting the electric two-wheeler and three-wheeler segments.
- Increased vulnerability in hybrid and internal combustion vehicle segments due to the essential role of rare earth magnets in electric steering and auxiliary systems.
Long-Term Risks and Systemic Challenges
Although Indian automakers generally maintain 4 to 6 weeks of inventory for rare earth magnets, an extended supply squeeze could disrupt production beyond seasonal peaks, erode investor confidence, and slow domestic EV adoption across all vehicle categories. India’s ambitious plan to reach 80 mn EV units by 2030 risks significant setbacks due to raw material constraints. The impact would be particularly severe in the affordable e-2W and e-3W segments, which are critical for mass EV adoption in rural and semi-urban markets.
India’s production of rare earths remains modest at approximately 0.7 percent of global supply as of 2024, with mine output at just 2,900 tonnes per year. Despite possessing the world’s third-largest, rare earth reserves totaling 6.9 million metric tonnes and approximately 35 percent of the world’s beach sand mineral deposits—significant sources of rare earths—India lacks the refining and processing infrastructure needed to produce high-purity rare earth materials, forcing continued reliance on imports.
The Way Out: India’s Multi-Pronged Approach
1. Strengthen Strategic Supply Diversification
To counter the supply crunch and reduce reliance on China, Indian policymakers and automakers are pursuing bilateral agreements with alternative suppliers. India has signed mineral-focused Memoranda of Understanding (MoUs) with Namibia, Chile, and Brazil, aiming to build long-term supply partnerships.
Through Khanij Bidesh India Ltd. (KABIL), a joint venture formed in 2019 to acquire overseas assets in critical minerals, India has made strategic investments such as a $24 million lithium exploration deal in Argentina. These diplomatic moves are reinforced by the EXIM Bank, which provides credit lines and infrastructure support to facilitate India’s mineral access across Africa and South America.
2. Accelerate Domestic Mining and Processing Capabilities
While India holds significant rare earth reserves and 35 percent of the world’s beach sand mineral deposits, current production of just 2,900 tonnes annually remains far below potential. The government’s Geological Survey of India (GSI) is actively conducting mineral exploration across the country to augment resources.
The National Critical Mineral Mission (NCMM), launched in 2025 with Rs. 34,000 crore allocation, includes Rs. 500 crores aiming to incentivize the establishment of mineral processing parks. The government has also approved a Rs. 7,300 crore scheme aimed at boosting domestic rare earth magnet production, targeting about 6,000 metric tonnes annually within 7 years. IREL Limited, a public sector undertaking, has been mandated to produce high-purity rare earth oxides from the mineral Monazite in India.
3. Encourage Technology Substitution and R&D Innovation
Industry leaders worldwide, including Tesla and Nissan, are investing in rare-earth-free motor technologies such as induction motors and ferrite magnets applicable across vehicle categories. In India, startups and established OEMs are piloting magnet-free or rare-earth-efficient electric drivetrains for both passenger and commercial vehicles. Simple Energy’s innovations in creating motors without neodymium or dysprosium exemplify opportunities to lower costs and reduce environmental impacts. The Ministry of Mines is providing funding for R&D projects related to rare earth elements, with 11 projects approved during 2023–24 and 2024–25 totaling Rs. 9.33 crore outlay.
4. Promote Battery and Magnet Recycling
India can take cues from mature markets where recycling of batteries and motors recovers rare earth elements, creating circular supply chains and reducing resource dependence. Investing in advanced recycling infrastructure will be crucial to sustainably meet future demands while minimizing environmental footprints across all EV categories.
5. Strengthen Policy Framework and Critical Mineral Security
Government initiatives including the National Critical Mineral Mission and the Rare Earth Theme Park Initiative aim to enhance indigenous production, innovation, and infrastructure. The PM E-DRIVE scheme represents a crucial policy lever, providing targeted subsidies for e-2Ws, e-3Ws, and commercial EVs with charging infrastructure investment.
The government is also planning to stockpile reserves of rare earth minerals to protect the domestic industry from supply chain disruptions. India has joined the Minerals Security Partnership (MSP) in mid-2023, a multi-nation group led by the United States focused on creating critical mineral supply chains. Streamlining regulatory frameworks and introducing single-window clearances for exploration and mining leases will accelerate project execution and attract private investment in rare earth development.
Key Challenges and Opportunities
- Mining capacity must progress alongside development of advanced refining and magnet manufacturing to create full-spectrum domestic capabilities supporting all EV categories, transitioning from current 0.7% of global production.
- India’s approach mirrors global trends, aligning with efforts in the US, EU, and Japan to develop rare-earth-independent EV production and reduce dependency on China-dominated refining capacity.
- Future EV resilience depends on vertical integration encompassing mining, processing, recycling, and motor innovation across passenger, commercial, two-wheeler, and three-wheeler segments.
- Transitioning to rare-earth-free technologies and bolstering recycling will contribute to greener, more sustainable manufacturing across all EV categories.
Conclusion: The Road Ahead for India’s EV Market
India’s rare earth shortage is both a stark challenge and a call for transformative action. With 5.6 million EVs already registered and targets to reach 80 mn by 2030, India faces a critical inflection point in its clean energy transition. India must urgently diversify supply sources, accelerate domestic mining and refining capacity, and pursue technological alternatives.
By strategically pursuing supply diversification through KABIL and bilateral partnerships, investing in domestic processing capacity through the Rs. 7,300 crore magnet production scheme and the Rs. 500 crore National Critical Mineral Mission, and encouraging technological innovation in rare-earth-free motors, India can reduce its vulnerability and secure its EV future.
Successfully overcoming these hurdles will elevate India from a dependent importer to a resilient leader in global clean mobility. The world watches as India navigates this critical juncture, with the potential to redefine sustainable EV manufacturing for decades ahead.
Deepak H is Partner & Country Head at Ipsos Strategy3 India. Views expressed are the author’s personal.