EV Makers Ask Government To Lower Import Duties, Domestic Sourcing Requirement in the Face of Rare Earth Magnets Shortage

Mumbai, 7 July 2025: India’s automobile industry is raising serious concerns over disruptions in electric vehicle (EV) production, triggered by China’s export restrictions on rare earth magnets-a critical component in EV motors. Major automakers have sought urgent government intervention, including lower import duties and temporary relief from domestic sourcing requirements, to avoid rising vehicle prices and production delays.

Auto Manufacturers Warn of Price Hikes and Production Halts

The Society of Indian Automobile Manufacturers (SIAM)-which represents leading firms such as Maruti Suzuki, Tata Motors, Mahindra, and Hyundai—has urged the Ministry of Heavy Industries to take swift action.

In a letter dated 27 June 2025, SIAM warned that importing fully assembled traction motors, the only viable option amid China’s curbs, attracts a 15% Basic Customs Duty (BCD). This cost increase could push EV prices upward, and more critically, disqualify manufacturers from the Production-Linked Incentive (PLI) scheme, which requires strict adherence to domestic value addition norms.

SIAM cautioned that production of several EV models may come to a halt, as standalone magnet imports are no longer feasible and alternatives are limited.

SIAM Calls for Immediate Duty Cut and PLI Exemptions

To address the crisis, SIAM has requested the government to:

• Temporarily exempt automakers from Phased Manufacturing Programme (PMP) timelines
• Ease Domestic Value Addition (DVA) thresholds under the PLI and PM E-Drive schemes
• Lower BCD on imported motors from 15% to 7.5%

The aim is to allow manufacturers time to adjust while avoiding disruptions in both supply and pricing as festive season demand builds.

Higher Costs Threaten Market Demand and Consumer Pricing

Industry analysts estimate that import duties, logistics, and vendor markups could raise the cost of EV motors by 18–25%, likely leading to further vehicle price hikes. Automakers have already increased prices by 1-4% in 2025, and further hikes may hurt consumer sentiment, especially with slower market growth projected in FY26.

Nomura Research Institute highlights that traction motors contribute approximately:

• 13–18% of the total bill of materials in electric two-wheelers
• 8–10% in electric passenger vehicles, second only to batteries (35–40%)

This reliance on rare earth magnets underscores the urgency of finding cost-effective and policy-supported solutions.

Government Weighs Support for Domestic Magnet Production

On 24 June 2025, Heavy Industries Minister H.D. Kumaraswamy stated that the government is actively considering a new subsidy scheme to boost domestic rare earth magnet production, with stakeholder consultations underway.

However, Chinese suppliers now insist on exporting only fully built motors, complicating India’s localisation targets under the “Make in India” initiative. Companies like Bajaj Auto have already flagged potential output disruptions starting July 2025, indicating the issue’s immediate impact on production lines.

Short-Term Solutions Unlikely Amid China’s Export Curbs

SB Mohanty, acting CMD of IREL Ltd, a government-owned rare earth firm, noted that no immediate solutions exist unless China relaxes its export controls. Meanwhile, companies are also grappling with compliance costs related to homologation and testing of alternative motor configurations.

With India’s auto sector projected to grow by just 1–2% in FY26, the rare earth shortage could become a defining challenge for the country’s EV transformation roadmap, potentially delaying progress and testing the resilience of manufacturers and policy frameworks alike.

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