India’s rare earth scheme: What does it mean for EVs?

With the central government having greenlit its incentive program for large-scale manufacturing of rare earth permanent magnets, India’s EV market stands to gain a real, structural advantage. The recent export curb imposed by China, caused several hiccups for many EV manufacturers in India, who source all of their rare earth magnets from China. China not only produces 90% of the world’s rare earth magnets, it also controls 70% of the processing.

India's rare earths incentive scheme does not address some of the core issues plaguing the EV market—namely the fact that we still import 100% lithium-ion cells. (AI Image)

Rare earth magnets play a vital role across modern electronics. In automobiles, they are used even in conventional ICE models, powering components like electric steering motors and wiper systems. But for EVs, they are absolutely essential: Permanent Magnet Synchronous Motors rely on them to produce high torque, maximise efficiency, and remain compact, making them fundamental to electric powertrains.

India’s new rare earth permanent magnet incentives aim to build a domestic supply chain by funding extraction, processing and magnet manufacturing. Implemented through a ₹7,280-crore PLI-style scheme, they will support approved companies with subsidies tied to production, localisation, investment and technological capability. The first two years are for setting up integrated facilities, followed by five years of sales-linked incentives. Up to five companies will be selected through global bidding to build a combined 6,000-tonne annual magnet manufacturing capacity.

While the move puts in place a foundational industrial policy designed to strengthen India’s EV and clean-tech supply chain, there do remain some unanswered questions. For instance, what happens if China lifts export curbs on REMs entirely, offering rare earth magnets at considerably lower costs than is feasible for a local manufacturer to compete with?

“The policy’s impact will only start showing after two years so in the short term, it won’t stop OEMs from sourcing from China,” says Nitin Gupta, co-founder and CEO at Attero, a leading e-waste and lithium-ion battery recycling firm in India. “In 2-3 years, we expect enough India-made magnets to begin replacing Chinese imports—this is the government’s objective. China has also announced a significant subsidy for rare earths produced in the country, which is almost double of the subsidy amount that the government of India is offering from a unit perspective.”

However, the incentive scheme does not address some of the core issues plaguing the EV market—namely the fact that we still import 100% lithium-ion cells. In addition to that, FY2025 has witnessed a slowdown in the EV market’s YoY growth rate which went down to 17% as compared to FY2024’s 42%.

While localised production of rare earth magnets will reduce dependence on China and iron out any potential supply chain bottlenecks, it still does not address the core issues plaguing EV industry—namely concerns surrounding residual value, and high purchasing costs due to imported battery cells.

“If production of rare earth magnets is to be localised, the consumer is looking at a price reduction somewhere between 5 to 15%”, Gupta says.

With multiple lithium-ion gigafactories and cathode/anode plants already underway, the new scheme will help fortify the supply chain. Something that will prove necessary as India scales-up its EV manufacturing. “It’s a step in the right direction. But under the ACC PLI, we have not been able to put up gigafactories of 50 gigawatts, the way we intended to. If that had happened on time, our EV ecosystem would have grown much faster”.

While the plan is to establish manufacturing facilities with a total capacity of 6000 metric tons per annum, and making India a global REM manufacturing hub, EV makers are also closely looking at using magnet-free motors. The two goals might appear to contradict each other on the surface, but they aren’t yet advanced enough to serve as a substitute for permanent magnet motors which offer higher torque density, are more energy efficient across the drive cycle, more compact, generate less heat and are generally simpler in nature.

“Will magnet-free motors reach the same level of efficiency in the next 10 years? The answer is no. Another 15-20 years? Yes. So both goals need to move parallely. India needs to be in a position in 15-20 years to set-up rare-earth free magnets.”

In a recent post on X, Ather co-founder and CTO Swapnil Jain, said the term “rare earth” is a misnomer since rare-earth materials are so abundant. But the term originates from the fact that the mining process is so expensive that it has thus far remained a rare and costly undertaking. It will likely remain the latter. Extraction also comes with its own set of environmental concerns. Something India is being mindful of in order to prevent ecological damage.

India has almost 6 million tonnes of rare earth minerals. That makes it one of the highest reserves in the world. Instead of mining them indiscriminately and then sending them for refining to China, the government has, through its National Critical Mineral Mission launched earlier this year, which also incentivises recycling efforts aimed at recovering rare earths from secondary sources like e-waste, spent magnets and electronic scrap.

The cabinet-approved incentives are a win-win for recycling firms like Attero as well. Not only because more manufacturing creates more manufacturing waste, thereby leading to greater recycling efforts, but because Attero already has 47 patents globally which are best-in-class for rare earth, including lithium. “We’re not only restricted to scrap materials to take on these rare earths. We’re also picking-up integrated output for mines and mine tailings.” says Gupta.