India’s auto sector may be heading into uncertain territory as a deepening global rare earth magnet supply crunch threatens to disrupt electric vehicle (EV) and internal combustion engine (ICE) production.With China holding over 90% of the global rare earth supply chain and prioritising European automakers like Stellantis and Volkswagen, Indian players have been left waiting.
“It is like the semiconductor crisis on steroids,” says Hormazd Sorabjee, Editor of Autocar India, who warns that production lines could completely stop if the issue isn’t resolved soon.
The concern is especially acute for EV makers, which rely heavily on these magnets for motors, but even ICE vehicles could feel the pinch due to their dependence on components like power steering and window motors.However, the industry may be shielded temporarily, thanks to current stockpiles.Vinkesh Gulati, Director at United Automobiles and former FADA President, shares that “we have inventory at the dealership level” lasting 52–53 days, and OEMs also have “four to six weeks” of buffer stock.“As of now, we are sorted till at least mid to end August,” Gulati said, while warning that if the crisis drags on, it will “crop up from September,” just as the crucial festive season begins. With major sales periods like Navratri approaching, the timing couldn’t be worse for a prolonged supply squeeze.These are edited excerpts of the interview.Q: If you go by the reports last 5-10 days, the Chinese have started giving these magnets to the Europeans. They are giving it as part of the trade talk to Stellantis, to GM, to Ford, but there’s still no breakthrough for us. They are still not giving these magnets to us. What do you think the fallout could be July onwards, if this is still not resolved?Sorabjee: It is really a major issue. It is like someone said the microchip semiconductor shortage or crisis on steroids. It is even worse, because production lines can completely stop, and we have no alternative but to source from China. And as we know because of a geopolitical issue, there are going to be difficulties. And let’s not forget, even India is not such a critical market for China yet, obviously they would kind of prioritise the Europeans. Don’t forget, a lot of European brands have investments, and they are huge in China, whether it’s Volkswagen so I think clearly you will see that the countries, like Germany and all they will be prioritised first.India, from what I understand, there’s no headway yet, and it’s a very long and laborious process to get the approval so that also is a challenge. This could potentially escalate into a major issue if not resolved quickly.Read Here | Rare earth edge gives China stronger hand in US trade tension: Lyn AldenQ: In terms of understanding potential impact what happens. I am not sure what inventory levels would manufacturers be holding right now, but say, players like Tata Motors or everybody, for that matter, EVs are everywhere, including the major EV players here in India, it could be unlisted entities like BYD as well. What should we be prepared for? Sorabjee: The EV players, definitely, they will be impacted the most clearly, because the electric motors need these rare earth magnets, and without that, you can’t build a car. But it’s not just the EVs, it is even the standard ICE vehicles, which take about half the quantity of rare earth magnets an EV would. But even then, even in an ICE car, you have got components like the power steering motors, the electric window motors, so all these components need rare earth magnets.As motors have been miniaturised that’s where rare earth magnets have their advantage, and that’s what is been used in the industry and everyone’s using them. It is just a commodity. But I think when one country controls 90% of the supply chain that is when it becomes a problem.Q: What other countries do you think can be drummed up because of production, etc. there is always that China Plus One sort of strategy. But for natural resources what other countries do you believe have the potential for supply or are there any alternatives here, because this can’t be, so lopsided.Sorabjee: The thing about rare earths is, it is in abundance. It’s everywhere, even we have them. Why it’s rare? It is very, very difficult to extract and that kind of let us say the extraction process requires huge investments in billions and billions of dollars. It is literally like taking a needle out of a haystack, because they are in such minute quantities, to mine them, then to process them, and then to convert them into a finished product, is hugely, hugely capital intensive.That is where really the challenge is, and that is where China has taken a lead over everyone, the rest of the world. To set up that sort of capability of extraction, production, and then finally producing a finished product that is the issue, and that can’t be done overnight.Read Here | Auto industry seeks govt help in expediting approvals for rare earth magnets import from ChinaQ: Let us understand what are current inventory levels like? What is your assessment, both on EV and ICE passenger vehicles? Till inventory still okay, maybe we tied over it, and hopefully there’s a resolution so it’s important to understand that give us your perspective.Gulati: We have just released the data, the FADA, if you have seen – it is 52 days to 53 days, we have inventory at the dealership level, which normally we don’t say, but I feel it’s lucky to have when this rare earth magnet problems have come up. Additional to this, what the messages we are getting from our OEMs is they are also sitting at four weeks to six weeks inventory at their plants or in the process of manufacturing, which clearly shows that, as of now, we are sorted at least till August, mid or end.But if this continues, the problem will crop up from September, which is the festive this time, because Navaratri is coming in September. There are some good dates in August also. But I feel the inventory at the dealership and at the OEMs will sort out till that time. And I hope till that time some problems will be resolved, maybe diplomatically or whatever things be.Q: What you are saying is that between dealerships and, back at OEM plants, we are covered for a good three months, in terms of inventory till end of August – June, July, August will be fine, right?Gulati: I hope so. So mid-August or end August, it will continue. See this is the time of a low season when the rains are there and there are no auspicious occasions and all that. From August, things will start coming back until that time we are covered.Q: I don’t know if this crisis, will prove to be a turning point, but otherwise, PV sales have, have failed to enthuse a surprise. I remember when Hyundai was listing, I remember an answer that the management gave us, and I had ask this, that what’s a steady state growth expectation? He said, look at historical data, 4% to 5% passenger vehicle growth for a company should be okay in India. Your thoughts on the big picture?Sorabjee: To be honest, we have had many years of stellar growth, we are around what 4.3 million, and to expect consistent and the same rate of growth of that very high base is quite unrealistic. We have to also accept that the demand situation definitely is tapering off. Multiple reasons also, and cars are also just getting more and more expensive. Even the replacement cycle, we have kind of absorbed that one huge replacement cycle. And right now, it is cyclical in that sense.And Vinkesh will also bear me out, we are going through a phase of, let us say flattish growth, or no growth, and then again, we will get into the cycle where we will see growth again. This is quite normal, and I don’t think it’s anything that I would see as unexpected, because to expect let us say double digit growth was unrealistic. I think even high single digit growth is unrealistic of this very high base right now.Q: What about EV penetration? It has been a lot slower than what the street was anticipating this time around. For non-EV makers, it is positive, but for EV, the entire ecosystem that everyone was betting on, it is not growing as fast. Where are your expectations on EV penetration, specifically in four wheelers and also two-wheelers, it’s been slightly slower than expected. Also tell us about any upcoming launches that could kind of fire up now. Tell us more about your outlook on EV.Gulati: Year 2025 was the EV launch of the year. We have lot of EV launches, which we have seen in the Auto Expo Bharat Mobility Show this year from Hyundai electric Creta and then e Vitara, Mahindra launching in. Tata planning of one or two more products in coming months. We have always expected that 2025 will be an year where most of the OEMs will have an EV in their bandwidth, which means most of the dealers will be selling an electric vehicle from their showroom, which wasn’t there till 2024.Now, because of the all the delayed launches, like Creta is still delayed. Now e Vitara, we heard because of rare earth material being delayed this all is clearly showing that EV adaption of the year would not be 2025. I feel 2026 will be where, when we start seeing bigger numbers or bigger ratios.We are currently at 4 to 5% – I feel it will start growing by 2026, when at least all Maruti dealers, Hyundai dealers, Kia already has but high price product, Mahindra is already there, Tata is already there. When four of the top six OEMs dealers will have a good EV, which is around ₹20-25 lakhs to sell, then we will start seeing the numbers going up.No doubt EV adoption as of now, has lot of challenges, but still, the way things are going in passenger vehicle it was expected. It’s a good percentage as compared. On the other hand, two-wheeler also, if you see, the percentage is increasing month-on-month.We are now averaging more than one lakh vehicle per month, and I am hoping with the kind of like even HMSI has finally announced those two products, they are coming in – as we get those two products the same thing, we will get 80% of the two-wheeler dealers now getting an electric vehicle. I feel the most important thing for EV adaption is – Jo Dikhta Hai Wo Bikta Hai – every dealer should have a product in the dealership.Also Read | India’s auto industry growth could slip into negative due to rare earth magnet shortage, says S&P Global’s Puneet Gupta
