Automakers rush to PMO, commerce ministry as Chinese magnet crisis worsens

Representatives from the Society of Indian Automobile Manufacturers (SIAM) and the Automotive Component Manufacturers Association of India (ACMA) are set to meet officials at the commerce ministry on Monday afternoon to express their grievances, three industry executives aware of the matter said.

The representatives had approached the Prime Minister’s Office on Friday, two of the executives said, asking not to be identified because they are not authorised to speak to the media.

China controls almost the entire global supply of rare earth magnets that are essential for making compact, powerful and efficient electric motors. Suppliers from the country started throttling the export of these magnets as a trade war raged between China and the US – the world’s two largest economies.

While the impact was initially expected to be on the electric vehicle market, it now emerges that the crisis could spread to the entire automotive industry and beyond. Rare earth magnets are used in permanent magnet motors that are employed for applications like air-conditioning motors and starter motors for conventional cars, for drones and even for high-end ceiling fans.

“Headlines talk about EVs getting impacted, but in fact any part that needs a motor is under this threat. Hence the entire ICE (internal combustion engine) portfolio is also under stress,” one of the executives said, adding that if no solution is reached, the crisis could potentially hurt production volumes.

“Frankly, there is no solution unless the Government of India intervenes with China at a political or administrative level and strikes a deal. They need to… get some relaxations for the industry like how the US and UK got relaxations,” the executive said.

Licence to export

China has not completely stopped the supply of these magnets. However, as per a new policy set by the Chinese Communist Party, all exports of rare-earth magnets from the country need a licence from the government.

The licence is granted only after the importer of the magnets supplies an array of documents including photographs of the product where the magnet will be used, an undertaking that the importer will not trade the magnets further and that it will not be used for any military application. An endorsement by the government of the importing nation is also required.

Getting a licence takes 45 days and it is valid for six months.

“The new customs policy effectively requires controlled management of all rare earth-containing magnets. Therefore, we need to apply for an ‌export licence‌ for magnets. This applies even to samples,” one Chinese vendor wrote in an email to an Indian motor manufacturer.

“This is the only solution for exporting magnet [sic] in China,” the Chinese vendor wrote. Mint has seen a copy of this email.

An alternative is to buy motors directly from China instead of importing the magnets, industry executives said.

“Chinese suppliers want us Indian players to take the motors directly and not the magnets. But we cannot do this because it will hurt the entire localisation bid of the government and auto players,” said a fourth person, a senior executive at an auto component making company. 

Queries emailed to the PMO, the commerce ministry, SIAM and ACMA on Monday morning did not immediately elicit a response.