Ever wonder what powers your electric scooter? Turns out, tiny rare-earth metals are a big deal for India’s booming EV market! But what happens when the supply suddenly dries up? Production stalls, growth slows, and the future of e-mobility hangs in the balance. Will India find a way to electrify its future despite global trade tensions?

India’s ambitious electric vehicle (EV) sector, poised for exponential growth, now faces a critical challenge: a severe shortage of rare-earth metals. This unexpected supply chain disruption threatens to derail the nation’s burgeoning e-mobility revolution, impacting leading manufacturers and dampening consumer confidence. The crucial role of these unique elements in advanced technologies underscores the vulnerability of domestic industries to global trade dynamics.

The immediate impact of this scarcity was prominently felt by Bajaj Auto, a titan in India’s two-wheeler segment. Its popular Chetak electric scooter, a flagship model, experienced a dramatic production slump in July, with output nearly halved compared to the previous year. This significant reduction in manufacturing capacity highlights the direct consequences of an unstable rare earth supply on established companies.

The root cause of this industry-wide predicament lies in Beijing’s strategic decision to impose restrictions on rare earth exports in early April, a move that closely followed the United States’ announcement of retaliatory tariffs. Since then, the flow of these indispensable materials into India has virtually ceased, leaving a multitude of sectors, particularly the electric vehicle manufacturing industry, in a precarious state of uncertainty.

This rare earth crisis unfolds at a particularly inopportune moment for India’s EV market. The sector had been on an impressive upward trajectory, with sales surpassing two million units for the first time in 2024, a substantial 24 percent increase from the preceding year. Two-wheelers, in particular, had spearheaded this growth, making the current production bottlenecks a significant blow to momentum.

Industry experts express profound concern that the persistent scarcity could deter potential buyers and erode investor confidence. As Nilanjan Banik, an economics professor at Mahindra University, notes, the EV industry remains in its nascent stages, and companies fear that an inability to meet demand due to rare earth element shortages could lead to customer attrition and a devaluation of their market share. The long-term implications for brand perception and market penetration are considerable.

While China recently signaled a tactical easing of restrictions on certain exports, including rare earths and fertilizers, following discussions with India’s foreign minister, the broader geopolitical landscape remains complex. India’s substantial trade deficit with China, which reached a record $100 billion, coupled with Beijing’s open support for Pakistan in recent regional conflicts, underscores the inherent risks associated with such deep economic reliance. This delicate balance of trade and political influence presents a persistent challenge for India’s EV sector.

Analysts, such as Ajay Srivastava from the Global Research Trade Initiative (GTRI), emphasize that India’s dependency on China grants the latter considerable leverage during periods of crisis. China currently supplies over 70 percent of India’s needs across several critical categories, including essential electronics. Srivastava suggests that any easing of rare earth supply should be viewed as a temporary tactical maneuver rather than a fundamental shift in the broader trade relationship, highlighting the fragility of existing supply chains.

In response to these vulnerabilities, India is actively pursuing a long-term strategic vision for self-reliance in critical mineral supplies. The Geological Survey of India (GSI) confirms ongoing exploration efforts aimed at securing domestic sources of these vital materials. This aligns with the government’s broader policy to bolster internal technological and industrial capabilities and reduce reliance on external suppliers for rare earth minerals.

However, the path to domestic self-sufficiency is fraught with challenges. Professor Banik cautions that establishing the necessary processing units for rare-earth metals could take over a decade, a timeframe during which current automotive technologies might evolve, potentially rendering the processed materials obsolete. This presents a complex strategic dilemma for India’s electric vehicle industry as it navigates both immediate supply issues and future technological shifts.