India’s electric vehicle industry faces production challenges due to an 85% reliance on Chinese rare-earth magnets and rising mineral costs. With new PM E-DRIVE localization rules taking effect on September 1, 2026, manufacturers now face dual pressure from import dependency and strict domestic production deadlines, which may impact short-term output and profitability.
The transition to electric vehicles (EVs) in India is navigating a difficult structural phase as of September 2026. The industry is currently dealing with the twin challenges of heavy reliance on imported raw materials and stricter domestic production requirements mandated by the government.
At the heart of the issue is a deep-seated dependency on China for critical minerals. India sources approximately 85% of its rare-earth magnets—components essential for EV motors—from China, which currently controls about 90% of global processing capacity. This concentration creates significant vulnerability. When China tightened export licensing in 2025, exports of these magnets dropped by 74% year-on-year, causing immediate production delays for many Indian vehicle manufacturers. While supply flows have since stabilized, the threat of sudden policy changes remains a constant concern for supply chain planners.
The situation is further complicated by rising input costs. Essential materials for battery manufacturing, including graphite, gallium, germanium, and antimony, are under strict export control regimes. In 2025, the price of gallium surged to 2.5 times its previous levels. Such aggressive inflation in raw material prices puts direct pressure on the profit margins of battery makers and vehicle manufacturers, who struggle to pass these costs on to consumers in a price-sensitive market.
Adding to these challenges, the government’s new localization mandates under the PM E-DRIVE scheme took effect on September 1, 2026. These rules require manufacturers to increase the domestic assembly of traction motor components. While this policy is designed to build long-term self-reliance, it places immediate operational pressure on companies that are still dependent on imported parts. Industry bodies like the Society of Indian Automobile Manufacturers (SIAM) have highlighted the difficulty of meeting these deadlines while the domestic upstream and midstream capacity is still in the early stages of development.
For investors, the situation underscores that the EV growth story is not linear. While the long-term potential for electrification in India remains strong, the short-term reality involves managing supply chain risks. The sector's ability to navigate this period will depend on how quickly local suppliers can scale up production to meet the government’s localization targets and reduce reliance on single-source imports. Market participants should monitor management commentary regarding supply chain diversification, the impact of raw material cost inflation on quarterly margins, and progress updates on localization compliance in upcoming company filings.