China’s Export Curbs Squeeze Dealership Stock Before Festive Surge

In April this year, Beijing quietly pulled a lever that has since rattled global supply chains. By imposing new export licensing rules and end-user verification mandates on shipments of rare earth magnets, China signalled it was ready to weaponise one of its most dominant economic advantages — control over the world’s most critical minerals.

Rare earth elements — like neodymium, praseodymium, and dysprosium — might sound obscure, but power everything from electric vehicle (EV) motors and wind turbines to fighter jets and smartphones. These elements are used to manufacture permanent magnets, a compact, high-efficiency material found in nearly every EV drivetrain and many ICE vehicle components like power steering systems and infotainment units.

The catch? While rare earths exist across the globe, over 90% of global refining and magnet production is controlled by China — largely because the refining process is capital-intensive, environmentally damaging, and dominated by state-backed Chinese firms since the early 1980s.

Officially, China said the new export controls are about “national security and compliance with non-proliferation standards.” But trade analysts and Indian industry executives The Core spoke with believe the timing is no coincidence.

The move comes amid escalating tensions with the United States over semiconductor supply chains and tariff escalations. In parallel, some see the clampdown as an attempt to curb the rise of India’s EV manufacturing sector, which is beginning to challenge Chinese dominance in key segments such as two-wheelers and light commercial EVs.

“It could also be that China’s economy is doing badly,” CS Vigneshwar, president of the Federation of Automobile Dealers Associations (FADA) told The Core.

“So probably they want us not just to buy the magnets, but the whole sub-assemblies and subsystems from them—so that their economy gets a little bit more wind in its sails.”

Festive Sales At Risk As Magnet Shortage Bites

The first signs of disruption are already trickling down to India’s dealerships — just months ahead of the industry’s most crucial quarter. Between August and October, the festive season drives 35–40% of the auto sector’s annual sales, with automakers relying heavily on this window to clear inventories, launch new models, and meet year-end revenue targets.

“We’re in dire straits,” said Vigneshwar. “If OEMs don’t produce, we have nothing to sell,” he added.

Dealers are already reporting subtle signals from manufacturers: requests to lift available stock quickly, and informal advisories to brace for slower deliveries ahead.

“We keep hearing this every month — pick up stock because it’s going to rain, or there’s a festival coming,” Vigneshwar said. “But this time, no one has answers. And that’s what’s worrying.”

According to industry estimates shared with The Core, two-wheeler dealerships are sitting on about one month of stock, while four-wheeler dealers have around 53 days’ inventory, with 15–20 additional days’ worth of vehicles likely held by OEMs. That buffer could vanish quickly if component imports remain restricted.

The concern isn’t limited to electric vehicles. While EV motors depend heavily on neodymium magnets, many ICE components — like power steering and seat motors — also rely on them.

If production halts, the entire pipeline could seize up within 8–12 weeks, according to estimates from the Federation of Automobile Dealers Associations, which peg current inventory buffers at two to three months.

Tier-1 suppliers — specialised firms that deliver ready-to-install systems like motors and drivetrains to automakers — are already feeling the squeeze.

“The current disruption is being felt most acutely by Tier-1s,” said Saket Mehra, partner at global consulting firm Grant Thornton Bharat, “They are now grappling with sourcing challenges, extended lead times, and new Chinese compliance requirements.”

This means delays at the supplier end would ripple down to factories, dealerships, and eventually, consumers.

A Heavy Dependence, Quantified

India doesn’t just depend on China for rare earths — it’s almost entirely reliant on it. In FY2023–24, India imported an estimated 460 tonnes of rare earth permanent magnets, nearly all of them sourced from Chinese manufacturers. That number is expected to rise to around 700 tonnes in FY2024–25, with a projected value of approximately $30 million, according to a report by The Economic Times.

India also imports well over 1,000 tonnes annually of rare-earth raw materials — including oxides, salts, and metals of neodymium, praseodymium, and dysprosium — to meet the needs of its automotive, electronics, and green energy sectors.

According to official data, in FY2023–24 alone, China supplied 699 tonnes of rare earth metals to India, accounting for 100% of the country’s imports in that category, along with the bulk of rare earth compounds.

What’s making matters more complicated for Indian importers is China’s new requirement for end-user certificates. Exporters must now verify that rare earth magnets are being used strictly for civilian purposes, such as automotive or electronics applications, and not for defence or dual-use technologies. These certificates must be cleared not just by the supplier but also signed off by the Indian government—a bureaucratic process that has introduced fresh delays across the board.

Vigneshwar said the process has added a layer of uncertainty for manufacturers and dealers alike. “The Indian government should certify it. The particular supplier should certify it. To say that this particular magnet or component is going to go into an automobile,” he told The Core, explaining that this is meant to assure Chinese authorities that the material won’t be used in military or other sensitive applications.

This lack of clarity, coupled with growing geopolitical friction, suggests that China’s move may not be a one-off. As Mehra, of Grant Thornton Bharat, pointed out, the rules of global resource trade are changing.

“As demand for critical minerals grows, particularly for clean energy technologies, similar regulatory approaches could become more common in international trade, potentially influencing how countries manage access to strategic materials”, he said.

Magnet Crunch Sparks Rethink

For now, there is still a small window to stabilise the situation. According to Anuj Sethi, Senior Director, Crisil Ratings, India’s OEMs and Tier-1 suppliers are working with 4–6 weeks of rare earth inventory, offering a temporary buffer. But if shipment clearances from China remain stalled, pure EV manufacturers will be the first to feel the impact, given their heavier dependence on magnet-based drivetrains.

“OEMs with both EV and ICE portfolios may be able to divert limited magnet stocks to ICE vehicle production, which requires comparatively fewer magnets,” added Sethi.

He also believes the disruption is likely to be short-term, with government-to-government talks already underway. But Sethi also notes that in the medium to long term, the industry will need to recalibrate—building sourcing relationships with countries like Vietnam, Japan, South Korea, and Russia, while investing in domestic magnet manufacturing and rare earth processing capabilities to reduce future exposure.

While the current inventory buffer might offer a few weeks of breathing room, the underlying supply shock is already making its way upstream. “An average EV motor has 1–2 kilograms of neodymium-based magnets,” said Anupam Kumar, co-founder and CEO of MiniMines, a clean tech company that recovers critical minerals from used batteries. “Stocking delays could slow motor production lines.”

These ripple effects won’t stop at factories. “OEMs will have mismatches in inventory, longer lead times, production delays, and direct impacts on availability in peak demand periods,” Kumar told The Core.

He pointed to a precedent: in 2022–23, global cobalt prices spiked due to a mismatch between demand and supply, disrupting battery supply chains. A similar dynamic in rare earths could mean that component delays start well before vehicles even reach dealerships.

Kumar believes the pinch will be felt most in EV two-wheelers and small commercial vehicles, where component imports are more tightly integrated into global supply chains. “ICE vehicles have localised supply chains that are mature,” he said. “But EVs are still exposed to global risks. If minerals like cobalt, lithium or neodymium remain in short supply through Q2 and Q3 of FY25, we will continue to see delays in EV model deliveries—particularly for high-demand SKUs.”

But he also sees a solution — not in geopolitics, but in recycling.

“The answer lies in two areas,” Kumar explained. “First, strategic, domestic recovery of these materials through advanced recycling of end-of-life batteries and e-waste. And second, creating a closed-loop ecosystem where urban mining of critical materials is as relevant and important as traditional mining.”

While MiniMines currently focuses on recovering lithium, cobalt, nickel and manganese from used battery cells, Kumar said the company is also exploring process extensions with e-waste dismantlers and motor component recyclers to recover rare earths like neodymium and dysprosium, which are typically embedded in permanent magnets.