India’s electric vehicle sector remains heavily dependent on imported semiconductors and rare-earth magnets despite ambitious localisation goals. A new report highlights that while EV sales have grown 14-fold since 2020, key components are still sourced from overseas. Investors should track PLI incentive disbursements and local technology development, as less than 10% of the ₹25,938-crore government corpus has been utilized by early 2026.
What Happened
India’s transition to electric mobility is hitting a speed bump. A joint report by the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research has flagged significant gaps in the country's electric vehicle (EV) supply chain. While India has set ambitious targets to localise 90-100% of EV component production by 2030, current progress is restricted by a heavy reliance on imports, particularly for high-value technologies. Despite the rapid 14-fold growth in the EV market since the 2020 fiscal year, essential components continue to be sourced primarily from China and Taiwan, creating potential supply risks for domestic manufacturers.
The Critical Import Dependency
The report highlights that core EV systems—such as traction motors, motor controllers, and vehicle control units—are not yet being produced with the depth required for true self-reliance. Traction motors, which are central to an EV's performance, are 100% dependent on imported rare-earth magnets. Similarly, motor controller units and vehicle control units rely entirely on imported semiconductors. These specific components account for roughly 25-30% of a vehicle's total value, while combined EV technologies like thermal systems and power electronics make up 60-70% of the total value. For investors, this means that even if a company assembles vehicles locally, a large portion of the value—and the cost—remains linked to international supply chains.
The PLI Disbursement Gap
One of the most critical takeaways for investors is the pace of the government’s support measures. The government launched a Production Linked Incentive (PLI) scheme for automobiles and auto components, with a significant corpus of ₹25,938 crore to boost domestic manufacturing. However, the report notes that as of early 2026, less than 10% of this fund had been disbursed to companies. While many firms have announced investment plans to secure these incentives, the data suggests that these announcements have yet to translate into widespread, large-scale manufacturing capacity on the ground. This creates an execution risk for companies banking on these subsidies to offset their initial expansion costs.
Business And Margin Implications
This dependency creates two main risks for EV manufacturers in India. First, reliance on imports exposes companies to global price volatility and supply chain disruptions, which can hurt profit margins. When a company cannot source critical parts locally, it loses the cost advantage that domestic production is supposed to offer. Second, the lag in developing indigenous capabilities in upstream materials and electronics means that the competitive advantage of early movers in the EV space may be harder to maintain. If competitors can establish local supply chains faster, they could potentially achieve better cost structures and higher margins.
What Investors Should Track
Investors monitoring the EV sector should focus on more than just vehicle sales figures. The next important updates will be the actual disbursement of PLI funds, which indicates how much manufacturing capacity is genuinely coming online. Additionally, watch for management commentary regarding the 'indigenisation' level of components—specifically whether companies are shifting away from imported rare-earth magnets and semiconductors toward local suppliers or in-house development. Tracking the timeline for new local facilities for power electronics and charging infrastructure will also be a key signal of long-term sector health.