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Rare earth magnets are specialised magnets which possess high density and extremely high electrical conductivity.

ICICIdirect Research 13 Jun 2025 DISCLAIMER

Rare earth magnets are specialised magnets which possess high density and extremely high electrical conductivity.

These magnets are essential for permanent magnet synchronous motors (PMSMs) widely used in EVs and hybrids.

China’s export restrictions on rare earth elements, particularly heavy rare earth magnets essential for high performance applications since April 2025 have disrupted supplies worldwide including India, threatening production of electric vehicles (EVs), hybrids, and high-end internal combustion engine (ICE) vehicles.

India is almost entirely dependent on China for rare earth magnets, importing over 80–90% of its requirements, making the auto industry highly vulnerable to such supply shocks. It is estimated that India imported 500 tonnes of such material for Electric 2W space last year and 300 tonnes for PV domain with total import costs pegged at ~₹ 300 crore.

Encouragingly, however the worst is behind us, with China already approving the supply of these material to some of the western automobile makers. Indian industry is also close to sealing the deal with the help of government of India.

Interestingly, in response to this, India’s leading automakers are preparing to launch EVs powered by motors that do not require rare earth magnets by FY27, while some of the new age 2W-OEM’s have already substituted traditional magnets with magnetized electrical coils in motors.

Nearly all major passenger and commercial vehicle manufacturers in India are developing rare-earth-magnet-free technologies, aiming to safeguard the sector’s growth and reduce vulnerability to external shocks, with commercial rollouts targeted for FY27. 

Automakers are also reassessing supply chains, seeking alternative suppliers in countries like Vietnam, Indonesia, Japan, Australia, and the US, and building strategic inventories.

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