What Are Rare Earth Metals and Why Does China Control Them? India’s Alternatives and the Auto Industry Impact

China’s April move to stop exports of seven key rare earth elements and strong magnets has caused a global supply crunch. While manufacturers in the US and Europe are facing delays, India’s auto industry is also facing the risk. SIAM has warned the government that without quick alternatives, vehicle production could stop completely by late May or early June.

Tensions between the two global giants - the US and China - have intensified recently, especially after the US, under President Trump, imposed heavy tariffs on Chinese goods. In retaliation, China restricted the export of seven rare earth elements and magnets in April 2025, disrupting global supply chains. 

These materials are vital to modern technology, powering everything from smartphones and medical devices to electric vehicles (EV), missiles, and defence systems. Rare earths are like the hidden powerhouse that makes today’s gadgets and machines smarter, faster, and more efficient.

What Are Rare Earth Elements?

Rare earth elements are a group of 17 special metals that are found in the earth’s crust. Even though they are not really “rare,” the name comes from the fact that they are hard to separate from other minerals. Getting them out of the ground and ready to use takes a lot of effort, money, and can harm the environment.

What are Rare Earth Elements used for?

Use case: Speedometers, electric motors, e-axles, electric water pumps, automatic transmission kits, speakers, sensors, engine ignition coils, smartphones and missiles.

Scandium, Yttrium and the 15 Lanthanides, lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), promethium (Pm), samarium (Sm), europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er), thulium (Tm), ytterbium (Yb) and lutetium (Lu) are considered as the Rare Earth Elements.

Source: https://vajiramandravi.com/upsc-exam/rare-earth-elements/

What Are Rare Earth Magnets?

China has now made it tougher to export seven of these elements - samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. Anyone wanting to send these out of China must first get a special license. Out of these, dysprosium and terbium are the most important for car makers and defence companies because they are key to making strong magnets.

Use Case: Rare earth magnets play a crucial role in several electric vehicle (EV) components, including electric motors, regenerative braking systems, and power steering. They are preferred because they can store high magnetic energy and perform well even at high temperatures, making them ideal for the demanding conditions inside EVs.

Source: Google Images

China’s Strong Hold on Rare Earths

China is the main player in the rare earth market. It produces around 70% of the world’s rare earth elements and handles 90% of the global processing. In simple words, most countries depend on China for these important materials. India, for example, imports about 809 tonnes of rare earth items every year.

Distribution of rare earths production worldwide as of 2024, by country

Source: Stastia

Why Are Rare Earth Elements Important To India: Rare Earths and Auto Industry Impact

In India, the auto industry body - The Society of Indian Automobile Manufacturers (SIAM) has warned the government that vehicle production could come to a complete standstill by the end of May or early June. While some automakers and their suppliers may be able to continue operations until the end of June, the situation is expected to become extremely critical after that. This shortage will not only impact electric vehicles but could disrupt the entire automobile sector, industry executives said, according to a report. 

Explore key performers in the auto sector stocks as they navigate the rare earth supply crunch

A Possible Workaround for India

To reduce this dependency, one idea being discussed is to let companies import full parts (called assemblies or sub-assemblies) that already have the magnets inside them, instead of just importing the magnets alone. But for this to happen, some government rules need to change—especially those related to local manufacturing requirements.

Looking at Other Countries

Some other countries do have rare earth magnets, but there are issues:

• Japan has magnets, but their quality is not as good as the ones from China.
• Vietnam is a possible option because it can set up supply quickly. But 90% of its magnets are used within the country, so it can only export a small amount.
• Indonesia uses about half of its magnets locally. However, there are concerns that China might have some control or influence over its supply.

Source: Visual Capitalist (from 1995 - 2023)

Recent Update from China

China’s Commerce Ministry has approved a limited number of export licenses for certain rare earth metals, citing rising global demand from industries like robotics and electric vehicles. A ministry spokesperson said the decision was based on the growing need for medium and heavy rare earth elements.

Where does India stand in Rare Earth Reserves?

India holds the world’s fifth-largest rare earth reserves at 6.9 million tonnes, says the U.S. Geological Survey. It has started exploring neodymium, used in auto magnets, and exported nearly $7 million worth between January and April. Still, mining remains limited due to low private sector investment.

Source: World Population Review

What is the GoI stance?

India is in talks with companies to create long-term stockpiles of rare earth magnets by offering production-linked incentives. As per an ET source, the scheme may also cover part of the cost difference between locally made magnets and cheaper Chinese imports. The Heavy Industries Ministry also plans to send a team of auto industry leaders to Beijing to seek quicker approvals.

Disclaimer: The article is for informational purposes only and not investment advice.