The Scarcity of Rare Earths Echoes that of Oil: Can India Establish Its Own Procurement Network?

In a significant development for India's burgeoning electric vehicle (EV) industry, concerns over the global supply chain of rare earth metals (REEs) have arisen. These essential elements, such as neodymium and dysprosium, are crucial for manufacturing permanent magnets used in electric motors, including in battery electric vehicles (BEVs) and hybrid systems.

China, which dominates the global production and processing of rare earth metals, controls over 85% of the global supply. This situation is particularly concerning for domestic EV manufacturers like Tata Motors, Mahindra & Mahindra, and JSW MG Motor, as most rely on imported components or raw materials from Chinese suppliers.

The potential bottleneck in upstream supply chains could disrupt assembly lines, delay vehicle launches, and reduce the availability of certain models, particularly in the electric and premium hybrid categories. The Federation of Automobile Dealers Associations (FADA) has stated that the supply risk of rare earth metals could have a direct impact on vehicle production and retail sales in the near term. FADA CEO Saharsh Damani has warned that if the supply situation for rare earth materials doesn't improve, production slowdowns may impact retail sales shortly.

However, the Indian government is pushing for wider EV adoption through state-level incentives. The EV share in India stood at 4.1% in May 2025, up from 3.5% in April and a significant rise from 2.6% in the same month last year. This shift in the EV market is driven by improved battery performance, wider charging infrastructure, and increasing consumer acceptance of electric mobility.

In response to the supply chain issues, Indian automobile manufacturers are exploring alternative technologies such as green hydrogen production and the use of natural fiber materials to reduce dependency on rare earth metals. These technologies are currently in stages ranging from research to early implementation in production vehicles.

Several OEMs are also exploring alternative technologies such as induction motors or switched reluctance motors that do not rely heavily on REEs. While these technologies are still in early stages of deployment and may not match the efficiency or compactness of current magnet-based systems, they offer a promising avenue for reducing reliance on China for rare earth metals.

Despite these challenges, the EV industry in India continues to grow. Speaking on the May 2025 vehicle retail data, FADA CEO Saharsh Damani said that current retail deliveries remain largely unaffected. However, sustaining this momentum without a reliable supply of key materials like rare earth elements could prove difficult.

Local suppliers in India are yet to develop the scale or processing capabilities needed to fully meet industry demand for REE-based components. China has imposed stricter export regulations on certain REEs, causing concerns among automakers worldwide, including in India.

As the EV market continues to evolve, it is essential to address these supply chain challenges to ensure a sustainable and reliable future for electric mobility in India.

The Scarcity of Rare Earths Echoes that of Oil: Can India Establish Its Own Procurement Network?