Call it turf wars or the battle of the egos as history remains our witness, the clash of tariffs between the U.S. and China goes all the way back to the Opium war in the 1830s-40s. Ever since then, there’s been friction between the two super powers and today due to the Trump tariffs imposed on China, the latter has decided to hold the world for ransom with export restrictions on rare earth elements (REE), which is a crucial ingredient for pretty much everything we use starting from mobile phones, medical devices, weapons, automobiles and much more. Rare earth elements are more like the industry’s secret sauce as these spicy little materials make tech more compact, faster, tougher, and downright resilient.
Like much of the world, India finds itself caught in the crossfire of China’s export curbs, with its domestic automobile sector now on high alert. We examine what rare earth elements are and whether these new restrictions could spell real trouble for car manufacturing in India.
Are Rare Earth Elements really rare?
Some might chuckle at our question, thinking the answer is obvious just from the name “rare earth elements.” But here’s the reality: while these 17 elements are actually quite abundant in the earth’s crust, the term ‘rare’” refers to how difficult they are to extract and refine. Rare earths are typically found mixed with other minerals, and separating them requires complex, costly, and often environmentally harmful processes.
In the 1980s, China capitalized on its less strict environmental regulations and easy access to land permits to rapidly expand mining and refining operations. This strategy allowed China to dominate the rare earth market as it now controls about 70% of the world’s rare earth mines and an astonishing 90% of processed rare earth materials, including the magnets that are essential for electric vehicles and still vital in many fuel-based cars. As a result, the global supply chain for these critical materials depends heavily on a single country, creating significant risks for industries worldwide.
Why should India be worried?
In April 2025, China decided to play a high-stakes game of cards and its ace move could very well strangle the global supply chain. China’s Ministry of Commerce slapped export restrictions on seven rare earth elements and magnets, just as U.S. President Donald Trump was busy raising tariffs on Chinese goods.
If you want to ship out samarium, gadolinium, terbium, dysprosium, lutetium, scandium, or yttrium then one now needs a special license first. Among these seven elements, dysprosium and terbium are especially crucial for the automotive and defence industries, where they are used to create powerful magnets essential for advanced technology and vehicle components.
Rare earth elements are vital for both traditional and electric vehicles as they power everything from motors and e-axles to sensors and ignition systems. China’s new export curbs are tossing a wrench into India’s auto production lines, and if this mess lingers, it could ignite a full-blown crisis for the industry.
Society of Indian Automobile Manufacturers, or SIAM has already reached out to the Government of India to intervene diplomatically and seek clearance for the rare earth magnets. While such efforts may provide temporary relief, industry experts warn that this approach merely delays the inevitable, leaving the core issue of supply chain vulnerability for critical components unresolved. SIAM was warned that restrictions on magnets could lead to a crisis as the supplies could run out as early as June.
A Bloomberg report revealed that Beijing has rejected multiple license applications for the rare earth magnets. This is also the case for Europe as its auto supplier association CLEPA, recently stated that while hundreds of export license applications have been submitted to the Chinese authorities since early April, only around 25% appear to have been approved.
Without mincing words, Bajaj Auto Ltd.’s Executive Director Rakesh Sharma laid in on the line saying, “Supplies and stocks are getting depleted as we speak and if there’s no relief in shipments, production will be seriously impaired in July.”
Recently, TVS Motor MD, Sudarshan Venu said that these restrictions will have an impact on the Indian automotive by June or July. The key to a long-term solution is to build a self-reliant supply chain. He said, “The industry needs to build a strong local ecosystem for these critical materials.” the company’s MD said, highlighting the urgent need to develop a more self-reliant supply chain.
India’s number one car maker, Maruti Suzuki stated that does not see an immediate impact on vehicle production, but one of its car models is facing production disruption due to supply chain challenges. Rahul Bharti, Senior Executive Director, Corporate Affairs explained that the launch timeline of the company’s first electric vehicle, the e-Vitara, remains on track despite the magnet restrictions.
Gaurav Vangaal Associate Director, Light Vehicle Production Forecast, Indian subcontinent at S&P Global Mobility, “The current situation remains stable, with some EV car supply being impacted but still manageable. Automakers and suppliers are proactively exploring alternatives, such as adjusting product mixes and sourcing from other Tier 2, Tier 3 suppliers. We’re anticipating that electric vehicles will be the first to feel the effects. However, there’s concern that if the situation persists, some internal combustion engine (ICE) components could face significant disruptions. As a result, the situation is evolving and industry is closely monitoring the situation to mitigate its impact.”
What next for India?
What might surprise many is that India holds the world’s fifth-largest reserves of rare earth materials. However, before you pop open the champagne and celebrate, it’s important to note that India’s rare earth sector has been largely managed by a single company, India Rare Earths Limited (IREL), and the country currently lacks the capacity to produce rare earth materials on a large scale.
Establishing a robust domestic magnet supply chain is an obvious next step, but this process is complex and time-consuming. In the meantime, some are considering alternatives like ferrite magnets. Another promising route is to ramp up rare earth recycling efforts such as extracting magnets from end-of-life electric vehicles to help bridge the gap while domestic production capabilities are developed.
