Chain Restricting Supply of Rare Earth Magnets Choking the Indian EV Industry

The introduction of electric vehicles (EVs) has fundamentally disrupted automobile industries worldwide. India, for example, is investing billions into EV technology to meet the increasing need for cleaner vehicles and to reduce dependence on fossil fuels. However, the country also faces a challenge that doesn’t receive as much attention—what happens when there is an insufficient supply of rare earth magnets? How will that affect India’s transition to the future?

Electric motors depend on rare earth magnets. These magnets, in turn, rely on a centralized global supply chain. As India attempts to realize its EV ambitions, supply chain issues surrounding rare earth magnets pose significant challenges. To mitigate the rare earth supply crisis and safeguard the Indian EV industry, this blog considers the risks, consequences, and possible risk mitigation strategies.

Overview of Rare Earth Magnets

What Are Rare Earth Magnets?

Rare earth magnets are strong permanent magnets made from alloys of neodymium, samarium, and dysprosium, among others. They are the most popular and widely used permanent magnetic materials. Their popularity stems from their performance, power, and stability at high temperatures.

Uses in Electric Vehicles

Rare earth magnets are typically found in the electric motors that drive the wheels of EVs. They are also essential for various sensors, regenerative braking systems, and other electrical subsystems. These magnets are small, lightweight, and possess exceptional magnetic strength. This strength helps improve the performance and energy efficiency of electric vehicles.

International Supply and Production Landscape

The rare earth supply chain is highly concentrated globally. China is the dominant player, producing over 85% of the global supply. It also leads in the extraction, processing, and export of these rare elements. This concentration creates a critical vulnerability in the global EV supply chain.

Current Challenges in the Rare Earth Supply Chain

Limited Domestic Production in India

India has reserves of rare earth materials. However, it lacks the infrastructure and technical expertise needed to extract and process them on a significant scale. As a result, the growing EV demand far outpaces the current domestic production capabilities.

Globally Concentrated Supply

China holds significant leverage in the global supply chain due to its near-monopoly on rare earth production. Any shift in China’s domestic policies or international relations can disrupt market access. This poses a major threat to countries like India that depend heavily on imports.

Trade Barriers and Export Constraints

Geopolitical tensions, tariffs, and export controls have led to price volatility and supply disruptions. With many countries adopting a more hostile stance towards China, rare earths have become tools of economic diplomacy. This adds another layer of complication to the supply chain.

Regulatory and Environmental Constraints

Strict environmental regulations are increasingly being enforced due to the ecological impact of rare earth mining and processing. This makes domestic production challenging, especially for governments that want to balance industrial growth with environmental protection.

Impact on the Indian EV Industry

Production Delays and Cost Increases

Indian EV manufacturers are facing delays in production due to limited access to rare earth magnets. The restricted supply has led to price hikes, which makes scaling production and ensuring affordability more difficult.

Disruption to Battery Manufacturers and OEMs

Original Equipment Manufacturers (OEMs) and battery producers require a steady supply of rare earth magnets. Supply chain disruptions affect the entire value chain—from component manufacturing to the final vehicle assembly.

Decreased Innovation and Investment

Instability in supply chains discourages long-term investments in research and development. Startups and small-to-medium enterprises (SMEs), which often operate on tighter budgets, are especially vulnerable.

Competitive Disadvantage in the Global Marketplace

Countries with stable access to rare earth elements are in a stronger position to scale their EV manufacturing. Without strategic intervention, India risks falling behind in the global EV race.

Risk Management Framework

To overcome these challenges, Indian stakeholders must adopt a comprehensive risk management framework. The risks can be identified, assessed, and mitigated as follows:

Identifying Key Risks

• Supply Chain Risk: Overreliance on a single country for critical components
• Geopolitical Risk: Trade wars, international disputes, and diplomatic tensions.
• Regulatory and Environmental Risk: Uncertain policies and compliance hurdles.
• Operational and Financial Risk: Rising production costs, delays, and lost investment opportunities.
• Technology and Strategic Risk: Dependence on specific technologies and failed R&D efforts.

Risk Assessment with Impact Analysis

Assessing the likelihood and potential impact of these risks is crucial. This includes developing scenarios, evaluating outcomes, and conducting stress tests to determine resilience against supply chain disruptions.

Risk Mitigation Strategies

• Supply Source Diversification: Partnering with alternate suppliers in countries like the U.S. and Australia
• Domestic Capability Building: Forming public-private partnerships to develop mining and refining infrastructure
• Strategic Reserves: Building stockpiles of critical materials to cushion against disruptions
• Technology Substitution: Investing in alternatives to rare earth magnets or reducing dependency through new designs
• Policy Advocacy and Diplomacy: Engaging in trade negotiations and strategic alliances to secure access

Professionals trained in a risk management course can play a pivotal role in implementing these strategies effectively.

Case Studies and Global Best Practices

How Other Countries Are Managing Rare Earth Risks

• Japan: After China’s 2010 ban on rare earth exports, Japan diversified its supply sources and advanced its recycling technologies
• United States: Invested in startups for rare earth processing and revived domestic mining
• European Union: Established the European Raw Materials Alliance (ERMA) to build a self-reliant supply chain

Lessons for India

India must accelerate its strategic planning and adopt similar measures. It should collaborate with technologically advanced nations, invest in academic R&D, and promote recycling programs through incentives.

Recommendations for Stakeholders

For the Government

• Establish a national rare earth policy
• Speed up environmental approvals for mining
• Offer tax benefits and subsidies to attract private investment

For EV Manufacturers

• Sign long-term supply contracts.
  
• Invest in recycling and reuse of rare earth elements.
• Develop in-house capabilities for magnet production

For Risk Managers and Investors

• Evaluate geopolitical and operational risks before investing.
  
• Support businesses with diversified supplier bases.
  
• Use ESG (Environmental, Social, and Governance) frameworks for long-term sustainability assessments.

   

For Research and Innovation Organizations

• Fund R&D on magnet-free motor designs and alternative materials.
  
• Collaborate with international agencies for knowledge exchange.
  
• Promote academia-industry partnerships for applied innovation.
  

A deep understanding of risk management is essential for all stakeholders to make informed decisions in such a volatile environment. Institutions like the Global Risk Management Institute (GRMI) can help bridge the knowledge gap.

GRMI and the PGDRM Program: Risk Management Gap

As supply chains become increasingly complex, the need for skilled professionals trained in strategic risk management has never been greater. GRMI’s Post Graduate Diploma in Risk Management (PGDRM) is designed to meet this need.

This course offers hands-on learning in identifying, assessing, and managing risks across various domains—supply chain, geopolitical, technological, and regulatory. Students learn through simulations, real-world case studies, and mentorship from experienced practitioners.

What sets the PGDRM program apart is its focus on real-world application, cross-industry relevance, and global perspective. Graduates gain not just academic knowledge but also the practical skills needed to guide organizations through disruptions like rare earth shortages or emerging tech risks.

Conclusion

The rare earth magnet supply crisis is a critical wake-up call for the Indian EV industry. Without timely and strategic action, India’s progress toward electric mobility could be stalled. However, by recognizing the risks, drawing lessons from global best practices, and implementing a robust risk management framework, India can turn this challenge into an opportunity for innovation and self-reliance.

Educational initiatives like GRMI’s PGDRM program can play a key role in building the skilled talent pool needed to navigate these complex, interconnected risks. With the right mix of investment, policy, and education, India can ensure that its EV revolution is not just powered by lithium and magnets—but by resilience and strategic foresight.