Bajaj Auto faces a 50% cut in EV production due to China’s rare-earth magnet export restrictions impacting India’s automotive supply chains.

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Bajaj Auto’s EV Production Slashed by 50% Due to Rare Earth Magnet Shortage

India’s electric vehicle industry is facing significant disruptions as Bajaj Auto announces a sharp reduction in its EV production. The automaker revealed that its output for electric vehicles has been cut in half, driven by a sudden shortage of high-rare-earth (HRE) magnets. This shortage is a direct impact of China’s export licensing curbs on specialized magnet components, which are critical for electric vehicle traction motors.

Impact of China’s Export Restrictions on India’s EV Supply Chain

China dominates the global rare-earth magnet market, accounting for over 90% of total output. The HRE magnets sourced primarily from China are essential due to their high power density and heat resistance, which are crucial characteristics for EV traction motors. Starting from April, Beijing’s imposition of export licensing on these magnets has caused major supply disruptions internationally, including in India’s burgeoning EV manufacturing sector.

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Bajaj Auto’s Executive Director, Rakesh Sharma, highlighted during the Q1 earnings call that the scarcity began impacting production as early as June, leading to delivery shortfalls to dealers. “While we expect production in August to be better than July, we may still see a shortfall of similar levels of 50% in this quarter in Chetak and about 25-30% or so in E-autos,” he stated.

Specific Production and Delivery Shortfall Numbers

• July witnessed a 50% production shortfall.
• Bajaj expects to ship only 50-60% of planned electric scooter volumes this quarter.
• Electric three-wheeler volumes will be at 70-80% of target.

Strategies to Mitigate the Magnet Shortage

To counteract this critical supply chain challenge, Bajaj Auto is pursuing a three-pronged approach:

1. Replacing High-Rare-Earth Magnets: Sourcing low-rare-earth (LRE) magnets from within China as a substitute.
2. Exploring Foreign LRE Products: Looking beyond China for alternative low-rare-earth magnet sources.
3. Considering Ferrite-Based Magnets: Developing plans to adopt ferrite-based magnet technology as a viable alternative.

In addition to these technical initiatives, Bajaj is actively engaging with authorities to reopen the flow of high-rare-earth magnets from China.

Financial and Production Outlook Amid the Magnet Crunch

Chief Financial Officer Dinesh Thapar explained that margins in the near term will depend heavily on how quickly magnet supplies normalize. Despite the reduced production rates, Sharma noted that the cost impact remains manageable because magnet expenses constitute a relatively small portion of the overall bill of materials.

Bajaj anticipates a full production restoration by the end of the current quarter. However, complete supply chain de-risking, including sourcing diversification and stockpiles, may take six to nine months to achieve.

Wider Industry Impact on Indian EV Makers

The magnet shortage crisis is not exclusive to Bajaj. Other leading Indian automakers and startups have also reported production delays due to the same supply challenges. For instance, Maruti Suzuki, India’s largest carmaker, recently cut near-term production targets for its e-Vitara SUV by two-thirds. Additionally, Ather Energy, a prominent EV startup, has flagged that the rare-earth magnet shortage will temporarily increase costs and slow dealer deliveries.

These developments underscore the vulnerability of India’s electric vehicle industry to global supply chain shocks—particularly those caused by geopolitical tensions and export policy changes in China.

Conclusion: Navigating a Critical Supply Chain Disruption

Bajaj Auto’s experience highlights the critical role of rare-earth magnets in EV manufacturing and the risks of overreliance on a single dominant supplier country. The company’s proactive measures to explore alternative magnet technologies and sources show a strategic commitment to overcoming current constraints. While short-term output reductions pose challenges, the mid-term outlook aims for full recovery and supply chain resilience.

For more insights into the rare earth magnet supply challenges and their effect on the Indian EV market, visit Rare Earth Magnet Supply Conundrum in India.

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