New Delhi [India], June 15 (ANI): Rare earth magnets, low in cost but critical in function, could emerge as a key supply-side risk for India's automotive sector if China's export restrictions and delays in shipment clearances persist, according to a report by Crisil Ratings.

The rating agency said this week that a disruption lasting more than a month can already impact electric vehicle (EV) launches, affect production, and weigh on the sector's growth momentum.

Rare earth magnets are integral to permanent magnet synchronous motors (PMSMs) used in EVs for their high torque, energy efficiency and compact size. Hybrids also depend on them for efficient propulsion.

The use of rare earth magnets in internal combustion engine (ICE) vehicles is largely limited to electric power steering and other motorised systems.

In April 2025, China - the world's dominant exporter of rare earth magnets - imposed export restrictions on seven rare earth elements and finished magnets, mandating export licences.

The revised framework demands detailed end-use disclosures and client declarations, including confirmation that the products will not be used in defence or re-exported to the US.

'With the clearance process taking at least 45 days, this added scrutiny has significantly delayed approvals. And the growing backlog has further slowed clearances, tightening global supply chains,' Crisil said.

India, which sourced over 80 per cent of its 540 tonne magnet imports from China last fiscal, has started to feel the impact, Crisil asserted.

'By end-May 2025, nearly 30 import requests from Indian companies were endorsed by the Indian government, but none have yet been approved by the Chinese authorities, and no shipments have arrived,' Crisil claimed.

Anuj Sethi, Senior Director, Crisil Ratings, 'The supply squeeze comes just as the auto sector is preparing for aggressive EV rollouts. Over a dozen new electric models are planned for launch, most built on PMSM platforms. While most automakers currently have 4-6 weeks of inventory, prolonged delays could start affecting vehicle production, with EV models facing deferrals or rescheduling from July 2025. A broader impact on two-wheelers (2W) and ICE PVs may follow if the supply bottlenecks persist for an extended period.'

In fiscal 2025-26, domestic passenger volumes are expected to grow 2-4 per cent, while electric passenger vehicles could rise 35-40 per cent, albeit on a low base. Electric 2Ws could grow 27 per cent, outpacing overall 2W growth of 8-10 per cent.

However, Crisil notes that sustained supply tightness could soften this momentum, especially in the EV segment.

Recognising the rare earth supply risk, the government and automakers are taking action on two fronts. In the short term, the focus is on building strategic inventories, tapping alternative suppliers and accelerating domestic assembly under Production Linked Incentive schemes.

For the long term, reducing import dependency will hinge on fast-tracking rare earth exploration, building local production capacity and investing in recycling infrastructure.

Meanwhile, India on Thursday said it is in touch with the Chinese side, seeking predictability in the supply of rare earth metals -- which had been put under the export controls regime by the Xi administration.

'We are in touch with the Chinese side, both here in Delhi as also in Beijing to bring predictability in supply chain for trade, consistent with international practices,' Ministry of External Affairs Spokesperson Randhir Jaiswal told reporters in the weekly briefing.

The MEA spokesperson was asked about India's engagement with China on rare earth, given that it is to an extent impacting the auto industry, among others in India.

Commerce and Industry Minister Piyush Goyal described China's rare earth export restrictions as a global 'wake-up call' recently, emphasising that India is actively building alternative supply chains while positioning itself as a trusted partner for international businesses seeking to reduce their dependence on Chinese suppliers.

Speaking to reporters during his official visit to Switzerland, where he met with Swiss government officials and business leaders, Goyal acknowledged that China's export curbs will create short-term challenges for India's automotive and white goods sectors.

China's overwhelming control of global rare earth processing - commanding over 90 per cent of the world's magnet production capacity - has created significant vulnerabilities for industries worldwide. These materials are critical across multiple sectors, including automobiles, home appliances, and clean energy systems.

Beyond China, there are only a few alternative suppliers.

The new Chinese restrictions, effective from April 4, require special export licenses for certain specific rare earth elements and their related magnetic products.

Separately, India and Central Asian countries (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and, Uzbekistan) have recently expressed interest in joint exploration of rare earth and critical minerals at the recently held India-Central Asia Dialogue here in the national capital. (ANI)