What's happening in the Electronic Vehicle (EV) Industry?
Popular automaker Maruti Suzuki recently slashed its production forecast for its first electric-based SUV, the e-Vitaara, citing rare earth magnet shortages. While one may mistake this news to be a regular operational projection, a closer analysis suggests the contrary.
The push towards EV amongst popular automakers in India over the past few years reflects India's growing incentivization for “cleaner” vehicles. While India’s move towards EV manufacturing is a commendable strategy to meet its Net Zero Target by 2070, it is important to recognize that this transition is far more complex than it may initially appear.
The first step towards any transformation in the manufacturing sector is a sound policy. In this regard, India has introduced initiatives to incentivise EV production. These include the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II) Scheme (2019), the Production Linked Incentive (PLI) Scheme for Advanced Chemistry Cell (ACC) batteries (2021), and the PLI Scheme for the Automobile and Auto Components Sector (2021).
The question which then arises is- “Why then does the sector still underperform?”
And the answer lies in the neglect of a crucial aspect- the supply chain for raw materials and magnets.
You see, India has rightly incentivized manufacturing, but such efforts are of limited use if it does not secure a reliable supply of the raw materials that form the backbone of the ecosystem. Think of it this way, even if the government were to provide you with generous incentives to set up a manufacturing plant for furniture, your business is unlikely to flourish if there is an inherent shortage of wood. The same analogy applies to India’s EV sector today.
While it is true that battery and auto component manufacturing has been given a stimulus by providing the incentives listed above in form of direct cash. However, these incentives are futile till rare earths and magnets (which are critical to production) are short in supply.
In April 2025, China imposed restrictions on the export of certain rare earth materials and magnets while mandating an “end use clarifications”. This has led to significant global supply chain disruptions and clearance delays. India which relies on China for over 80% of its magnet imports felt the strongest pinch of this policy. Auto-manufacturers in India have also warned of a possible shutdown by July 2025 if the supplies are not resumed soon.
This restriction by China is not just a short-term pinch, it is a strategic wake-up call for India to look at alternatives.
In this regard India has already taken some diplomatic steps. It has signed Memoranda of Understanding (MoUs) with countries such as Australia and Democratic Republic of Congo to adopt alliance in survey, technology transfer and commercial investment in mineral supply chains.
However, if India wants to remain a key player, such diplomatic ties alone will not suffice. India must focus on its domestic ecosystem including its considerable untapped resources. According to U.S. Geological Survey (USGS), India’s rare earth mineral reserves are the fifth largest in the world with significant deposits at Odisha, Tamil Nadu and Kerela. Despite this, India currently lacks the large-scale refining and processing capacity especially for the manufacturing of NdFeB magnets which remain critical to EV production.
Thus, the first step, for long term security, must be towards accelerated domestic exploration of reserves and increase in the requisite processing capacity. Similarly, domestic magnet production facilities supported by PLI schemes should also be promoted. India should also invest in the research and development of rare earth tech for a robust and continued growth of the sector. Technology transfer partnerships will also be pivotal.
While India’s growing ambitions to become a key player in the “Clean Energy Ambitions” are commendable it shall remain important to address the gaps in its supply chain to truly meet its aspirations. By investing in domestic capability, India can position itself as a “Green Leader” as well as a “Domestic Powerhouse”.
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