India’s Electric Vehicle (EV) manufacturers are fearing imminent plant shutdowns as their crucial rare earth magnet inventories are set to run dry by July 31. This looming manufacturing halt is dramatically magnified by the government’s alarming delay in disbursing incentives under both the Production Linked Incentive (PLI) scheme and the Prime Minister Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme.
Industry sources reveal a grim picture: several Original Equipment Manufacturers (OEMs) of electric two- and three-wheelers are teetering on the edge, with only days of rare earth magnet supply remaining. The dire situation is compounded by the prohibitive cost of exploring alternatives, which would inevitably lead to a sharp price escalation for vehicles. Without government incentives, manufacturers are left with no margin to offer discounts, a critical factor during the upcoming festival season when customer expectations for deals are high.
The Ministry of Heavy Industries (MHI) has further exacerbated the crisis with a recent directive demanding OEMs declare sufficient rare earth magnet inventory – a move that has trapped manufacturers in an impossible “catch-22” situation. “As festival season kicks in from next month, it will be very difficult to meet the demand, and also customers expect heavy discounts during these times,” an industry source confided. “Both PLI and PM E-DRIVE schemes are on hold until Chinese restrictions on rare earth magnets resolve. So, without any support from the government, it will be very difficult to sell the vehicles.”
Adding to the despair, component suppliers have informed OEMs that no motors will be available after July 31. Direct importation of motors presents an equally unviable solution, attracting a steep 15 per cent customs duty compared to the 7.5 per cent levied on standalone magnets. This disparity prompted the Society of Indian Automobile Manufacturers (SIAM) to urgently appeal to the MHI last month, requesting a reduction in the basic customs duty (BCD) on motors to 7.5 per cent.
In a letter to the MHI, SIAM highlighted the critical issue: “Import of standalone magnets attract BCD of 7.5 per cent, and import of complete motor assembly or in sub-assembly form attracts BCD of 15 per cent. However, in the current scenario when there is a restriction on import of standalone magnets, full assembly/ allied components/ sub-assemblies will have to be imported which shall attract BCD of 15 per cent leading to increase in cost of the vehicles.” The industry body implored, “Hence, we request to support in putting up appropriate request to Ministry of Finance to relax the BCD levy and request to cap the BCD for such motor/subassemblies/assemblies at 7.5 per cent.”
The government’s hesitant stance on incentives stems from past controversies, where the MHI accused companies like Hero Electric, Benling India Energy and Technology and Okinawa Autotech International of fraudulently claiming subsidies under the FAME-2 scheme. This matter remains under investigation, making the government cautious.
However, industry insiders are urging the government to adopt a holistic view, emphasising that the entire sector should not be judged based on the inventory claims of a single company. While Ola Electric recently informed MHI that it possesses sufficient magnet inventory and is exploring ferrite motors as an alternative – with testing and validation expected to conclude by Q3 this year – this singular example offers little solace to the majority of manufacturers facing an immediate and severe supply crunch.
Attempts to seek clarity from an Ola spokesperson and senior MHI officials on the matter went unanswered. The clock is ticking for India’s EV industry, with a critical deadline just days away.
Published on July 27, 2025
