In today’s Finshots, we explain how China’s rare earth export restrictions is stalling global vehicle production and why India, despite sitting on huge rare earth element reserves, still can’t step in to help.

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The Story

In one of the wildest episodes of the series Breaking Bad, Walter White and Jesse Pinkman find themselves in a jam. The cops have a laptop which holds the evidence to expose their entire drug operation. And it’s locked inside a police evidence room. So what do they do? Well, load a giant industrial electromagnet into a truck, park it outside the station, crank the dial to full and boom! The magnetic field pulses through concrete, fries the laptop’s hard drive and sends metal objects flying across the room. Laptop destroyed, evidence gone, problem solved.

It’s absurd, brilliant and it’s real science. That’s how magnets can be. And in the real world, magnets do something far more impressive. They make things move. Especially inside your car!

Not the fridge magnet kind. We’re talking about ‘rare earth magnets’ made from elements like neodymium, dysprosium, terbium and samarium. These are far stronger, more compact and much more efficient. A magnet the size of a coin can move heavy car parts quickly and precisely.

Let’s say you press a button to roll down your window. That button sends electricity to a small motor in your door. Now, inside that motor is a rare earth magnet. The electricity spins the magnet, which turns gears and moves the window. Now multiply that same functioning across your car. Power steering, seatbelt retractors, headlights and speakers, windshield wipers, even brakes. All dependent on magnets.

But why talk about it today, Finshots?

Well, because the supply of these magnets is breaking down. And at the receiving end of this breakdown is the Indian auto industry. How?

Let’s take it from the top.

In April, China tightened its export rules for rare earth minerals. 7 out of 17 key rare earths now require a special government license to leave the country.

But if you dig a bit deeper, you’ll find that rare earths aren’t technically rare. You’ll find them scattered across India, Australia, Vietnam, the US.

So why the panic? Because while rare earth minerals are fairly widespread, they’re found in tiny concentrations. Extracting them is expensive, toxic and messy. And separating one rare earth from another is even harder. And that is where China has had a massive head start for years.

You see, back in the 1980s and 90s, China made a strategic decision: it would corner the rare earth minerals market. It offered cheap land, easy permits and minimal environmental rules. Western countries gave up, and one by one, rare earth mines and refineries outside China shut down. And today, China controls about 70% of the world’s rare earth production and about 90% of its processing.

So when China cuts exports, it’s a full-blown squeeze for the world. In April alone, its rare magnet exports dropped by over 15%.

And even if every alternative supplier — like Australia, Vietnam, Malaysia — ramped up their rare earth elements output today, they’d still meet only a fraction of that demand. Take Australia, for instance. It has the world's fourth-largest rare earth deposits and a major miner called Lynas. But its total output last year was just about 13,000 tonnes, or less than 5% of China’s. Vietnam has vast reserves but lacks processing tech, while Malaysia processes ore but doesn’t mine much. And the US is trying to recycle these minerals from old electronics, but that’s still early-stage since volumes are tiny and logistics are complex.

Which brings us to India.

Believe it or not, India holds about 7 million tons of rare earth reserves —the fifth-largest in the world. But in 2023, we produced only 2,900 tonnes or less than 1% of global output.

Why?

Because rare earth mining in India was dominated for decades by a single public sector firm IREL (India Rare Earths Limited). And for a long time IREL mostly focused on extracting monazite sand from beach minerals for nuclear use. We never built commercial refining capacity for the full suite of other available rare earth minerals and the private sector wasn’t allowed into the game.

As a result, most of the rare earth magnets used by the Indian auto sector come from China. These are specifically called NdFeB (neodymium-iron-boron) and SmCo (samarium-cobalt) magnets—used in everything from seat motors to the main electric drivetrain. And these magnets can’t be replaced on short notice without redesigning entire systems, which could take years.

That’s why several automakers and component suppliers have already written to the government, warning of severe production disruptions. Some have even stated that without an immediate resolution, assembly lines could halt by end-June or early July.

So what’s India doing about it, you ask?

In the short term, the Indian auto industry and companies are lobbying the government to use diplomatic channels and request China to approve magnet shipments that were already in the pipeline. Sure, this might buy time but it won’t solve the bigger problem.

Some companies are even trying to localize magnet manufacturing by partnering with IREL. But the numbers don’t add up. For instance, IREL’s plant in Vizag can produce just 3,000 kg of SmCo magnets annually. That’s barely enough for a small EV maker, especially when a typical single motor EV alone can use around 0.5 kg of rare earth magnets.

And on the policy front, the government has launched a Critical Minerals Mission, auctioned new exploration blocks and ramping up mining norms.

But here’s the thing. Even with big investments, setting up a rare earth mine in India takes about 6 years. So building an entire mine-to-magnet supply chain could be a lengthy process. So in the meantime, the government may have to diversify its sourcing by signing trade deals with rare earths rich nations.

The real issue here isn’t just about rare earth magnets. It’s about how entire industries can be brought to a halt by a supply chain with a single point of failure. Especially in today’s tariff driven, geopolitically tense world.

There’s another layer too. India’s FAME subsidies and EV targets assume that critical imports like batteries, chips, magnets will continue flowing from China. But if magnets are held up for even a few months? Production stops. EV players miss deadlines. If they miss deadlines, subsidies are lost. And India’s clean mobility goals start to unravel.

So maybe before dreaming of becoming the world’s next EV export hub, we should ask: can we be self-sufficient first?

Nevertheless, there are glimpses of hope. Some domestic players are experimenting with ferrite magnets or magnet-free switched reluctance motors. Others are trying to partner with global firms to set up refining capacity here. There’s talk of new mining auctions and offtake deals with Australia and Vietnam. And if India can fast-track rare earth recycling, say, by extracting magnets from e-waste and end-of-life EVs, we might carve out a defensible edge.

But the longer we stay dependent on a single supplier, the more exposed we remain to the next big shock. And unless India learns to build buffers and invest in local processing, this won’t be the last time something small stops something big.

Until then…

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