India May Ease EV Localization Rules Amid China’s Rare Earth Export Curbs

India is reportedly considering relaxing its 50% localization requirement for electric vehicle (EV) manufacturers and component suppliers under its flagship incentive schemes. This shift comes as China’s restrictions on rare earth exports, announced in April, disrupt critical supply chains for materials essential to electric mobility—particularly permanent magnets used in traction motors.

Government Mulls Softening Localization Mandates in Response to Supply Crisis

While the Society of Indian Automobile Manufacturers (SIAM) has not yet made a formal request to dilute localization norms under the Production-Linked Incentive (PLI) scheme, several member companies have voiced concern during closed-door consultations with government officials. These auto players are struggling to meet domestic sourcing targets due to the severe disruption in rare earth magnet supply, which is essential for the EV industry.

Highlights:

• India may ease 50% localization rule under the PLI scheme for EVs.

• Rare earth curbs from China have crippled supply chains for key motor parts.

• SIAM has flagged the issue informally in multiple industry-government meetings.

China’s Rare Earth Export Ban Leaves Indian Manufacturers in a Bind

China’s decision to limit the export of rare earths used in permanent magnets—a core component of traction motors in EVs and hybrid vehicles—has sent shockwaves through India’s nascent but rapidly growing EV ecosystem. While China controls the global supply of rare earth magnets, the curbs have forced Indian OEMs and suppliers to seek short-term solutions, including importing fully assembled motors or sub-components.

Highlights:

• Beijing’s curbs have hampered access to critical magnet materials.

• India advises automakers to import fully-built motors temporarily.

• PLI disbursement now at risk for firms unable to meet localization benchmarks.

Supply Disruption Threatens EV Self-Reliance and Local Investment

The rare earth supply crisis poses a major setback to India’s EV localization push, with manufacturers warning of the potential collapse of ongoing localization investments. Suppliers who previously bet on permanent magnet synchronous reluctance motors (PMSRM) and other magnet-based assemblies to qualify for the PLI scheme may now lose competitive ground to Chinese imports. For many of them, this comes before even receiving the first tranche of government incentives.

Highlights:

• PLI-eligible suppliers may lose business due to import substitution.

• Investments in localizing PMSRM and magnet assemblies now at risk.

• Self-reliance ambitions undermined as reliance on Chinese imports rises.

Cost Pressures Mount for EV Makers Amid Import Workarounds

Importing motors from China as a workaround will drive up costs considerably for Indian automakers, especially those in the two-wheeler segment, where cost sensitivity is high. According to industry estimates, shipping a traction motor by sea will raise the cost by ₹2,000 ($23) per unit, while opting for air freight can escalate it to as much as ₹5,000 ($58)—a significant burden for a price-conscious EV market.

Highlights:

• Sea freight adds ₹2,000/unit; air cargo adds ₹5,000/unit.

• Rising costs could impact pricing for electric two-wheelers.

• Indian OEMs forced to absorb higher costs or risk margin erosion.

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