India’s EV Localisation Drive Hits a Chip and Rare-Earth Wall
India wants to make electric vehicle parts at home. This is called “localisation.” It just means making parts inside India instead of buying them from other countries. “EV” means electric vehicle. That is a car, scooter, or bus that runs on a battery and motor, not on petrol or diesel.
India is moving fast on this. But it has hit two big walls. The first wall is computer chips. The second wall is rare-earth magnets. A new report says India can make most EV parts at home by 2030. But these two parts still come mostly from other countries. That is slowing the plan down.
The report is called Beyond Battery Packs: Localisation in Manufacturing EV Components. It came out on 23 June 2026. Two groups wrote it: the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research & Analytics. The report is hopeful overall. But it says chips and magnets are the hardest problems to fix.
What the report actually says
First, the good news. The report says India could make 90 to 100 percent of many EV parts at home by 2030. This is for parts outside the battery. It means almost every screw, wire, and motor could be made in India.
These parts include motors, power electronics, and cooling systems. They also include chargers, control units, and body parts. And wiring harnesses, suspension, and brakes. India can make all of these at home.
But two parts are very hard to make in India. The first is semiconductors. The second is rare-earth magnets. A semiconductor (also called a chip) is a tiny piece of silicon. Silicon is a material used in electronics. The chip works like the brain of a device. It tells the EV’s motor and battery what to do.
A rare-earth magnet is a very strong magnet. It is made from special metals. This magnet spins the electric motor that turns the wheels. Right now, most of the world’s chips and magnets are made in just two places: China and Taiwan.
This is the main problem. India can copy almost the whole EV. But the “supply chain” for these two parts still runs through other countries. A supply chain is the full journey a product takes. It goes from raw material, to finished part, to the factory. If one step breaks in another country, India’s factories suffer.
Why China’s rare-earth curbs hurt
In April 2025, China made a new rule. It put “export curbs” on the materials used to make EV motors. An export curb is a rule that limits how much a country can sell to others. China makes more than 90 percent of the world’s magnets. So when it sold fewer of them, carmakers everywhere got worried.
India felt this fast. An Indian carmaker, Mahindra & Mahindra, had to find new ways to keep building EVs. The company found backup supplies for about nine months. It also tried other materials, like ferrite. Ferrite is a weaker magnet, but it is easier to find.
After months of talks, China later gave some magnet licences to India. This eased the problem a little. But the scare taught India a lesson. It is risky to depend on just one country.
Here is a surprising fact from CRISIL Ratings. CRISIL is a company that studies and rates businesses. It says rare-earth magnets cost less than 5 percent of a vehicle’s price. But without them, the EV will not run at all. A cheap part can stop a whole factory.
Key facts at a glance
| Item | Detail |
|---|---|
| Localisation possible by 2030 (non-battery parts) | 90–100% |
| China’s share of global magnet making | Over 90% |
| Rare-earth magnet share of vehicle cost | Less than 5% (CRISIL) |
| China export curbs began | April 2025 |
| Mahindra’s backup supply window | About 9 months |
| India’s EV sales growth since FY20 | Nearly 14-fold |
| Auto PLI scheme total outlay | ₹25,938 crore |
| PLI funds disbursed by early 2026 | Less than 10% |
| EV component makers from PLI-approved firms | About 60% |
The rules India may relax
To get money from the government, EV makers must follow a rule. They must make a set share of parts in India. This is called a localisation target. Under the PLI scheme, the target is 50 percent.
PLI stands for Production-Linked Incentive. It is a plan where the government pays companies a reward. They get the reward for making more goods inside India. The more they build at home, the bigger the reward.
But there is a catch. A carmaker may not get enough magnets or chips from India. Then it is hard to meet that 50 percent rule. So a group called the Society of Indian Automobile Manufacturers spoke to the government. It asked if the rule can be made easier for now. In the short term, companies have been told they can import full motors. This helps them get around the magnet shortage.
The government is also making a new plan for rare-earth processing. It is based on the PLI idea. The goal is to match import prices and grow demand at home. Officials had not fixed the exact amount when the report came out. But they planned to meet industry leaders to work out the details.
The money already in play
India is not starting from zero. The PLI scheme for cars and car parts has a total budget of ₹25,938 crore. The report says about 60 percent of recent EV part announcements came from companies already approved under PLI. (This is for parts outside the battery.) So the policy is bringing in real money.
But there is a slow spot. By early 2026, less than 10 percent of the scheme’s money had been paid out. Approving a plan is one thing. Getting the cash into factories is another. The gap shows how long it takes to build a new industry.
FAQ
What does “EV localisation” mean?
It means making the parts of an electric vehicle inside India, instead of buying them from other countries. More local parts mean more jobs. It also means India depends less on other countries.
Why are rare-earth magnets such a problem?
They are small but very important. They spin the EV motor. And China makes over 90 percent of them. When China limited exports in April 2025, Indian carmakers had to find backup supplies fast.
What is a semiconductor or chip?
A semiconductor, or chip, is a tiny piece of silicon. It works like the brain of an electronic device. In an EV, it controls the motor and battery. Most chips are made in China and Taiwan, not in India.
Can India really make 90–100% of EV parts at home by 2030?
For many parts outside the battery, yes. That is what the IEEFA–JMK report says. But chips and magnets are the two hard exceptions. They could limit deeper progress.
Why it matters (especially for India / founders)
India’s EV sales have grown nearly 14 times since FY20. That is a huge market growing fast. But growth built on imported chips and magnets is weak. One foreign rule change can stop whole factories. The 2025 magnet curb showed this clearly.
For founders and business owners, this is a warning and a chance. The warning: do not build a hardware business on just one foreign supplier. The chance: India badly needs companies that can do certain jobs at home. These jobs are processing rare-earth materials, making magnets, or building chips.
The government is getting money and policy ready to fill these gaps. So early movers could do well. Companies that start magnet processing and chip-linked work could earn rewards and find steady demand.
The takeaway is clear. India has solved the easy parts of EV localisation. It is racing toward 90 to 100 percent on most parts. Now it must crack the two hardest links: chips and rare-earth magnets. And it must do this before the next supply shock hits. Until these parts are made in India, the localisation drive is only partly done.
Source: Financial Express
