China Rare Earth Export Ban: Doomsday Countdown Begins For Indian Autos?

0:00 So that's the word coming in from Tata Motors as well. But let's also welcome in Sman Mandal, senior analyst automotives at Counterpoint Research. Uh Sman, good afternoon and welcome to the show and a pleasure to speak to you as always. Uh Sman, my first question coming to you is majority of the managements actually indicated uh the scarcity that the companies could face in terms of uh the rare earth magnet in their fourth quarter earnings call as well. But at that point in time probably not everyone assumed that this would really go on for so long. But taking into consideration the exclusive details what my colleague Tishar has gotten that the companies just have stock to probably go ahead for 30 more days. What would this entire scenario actually entail according to you for the

0:47 sector? Okay. Yeah. Thank you. Yeah. uh as we can see ED EV adoption accelerating in India the shortage of rare earth materials uh posess a serious challenges to the industry right so these materials are essential for producing battery cells battery management system battery cooling systems and PMDC motors and as well as other power electronics components so as India also scales up local manufacturing of motors and battery sales. So this scarcity could significantly hinder production and slow down country's electrification momentum. But uh as we can also hear from all the

1:33 automakers. So automakers started uh like building up inventory months uh I think 3 to 6 months before and we know in future festive season is coming. So that's why I think Indian automakers currently has uh enough inventory uh until festive season. Maybe after uh festive season or at the end of this year we can see a little bit of impact but I believe uh at that point of time Indian government and automakers will find a solution. So uh good afternoon Mr. Mandal Tashar here just uh to step in into this conversation. uh you think uh Indian automakers have the inventory to last up to the festive season because the

2:19 festive season is very crucial for the Indian auto space at large. What I'm hearing is that they have stock only for the next 30 days dependent on the curbs that actually first came into effect on the 4th of April. So we know that there was 90 days of stock that was available within automakers. But are you getting the sense that they may have stocked even more so that the festive there will be no pain during at least the festive season? Yeah, I think uh so normally automaker started production way before festive season to uh to cope up with increasing demand during festive season. So that's why before production if so I think uh if automaker start production from June so that means they have procured components even 2 3 months before so

3:07 because uh they know that what can be the demand for festive season. So that's why I think we can see from June onwards significantly higher dispatches to dealerships, production numbers. Yes. Yeah. Uh I I think yeah that is the reason you can see also from dealership numbers we can see higher dispatch numbers because uh yeah dealers will be piling up uh inventory because that should not impact on sales at the time of festive season. But Mr. Mandal what can be a work around this particular situation we know that China accounts for 90% of the processing of rare earth magnets globally but are there any other geographies that India can look at to get the supply of rare earth magnets

3:55 yeah uh we know that China controls nearly 60% of global rare earth material mining and nearly 90% of uh supply chain of rare earth materials but if you look at The rarest materials we know there are 17 rare earth materials but seven are rarest earth materials right so including few of the materials like disproium gadalinium so for these minerals of China and have very good uh dominance maybe China has nearly more than 95% of dominance in this rare rest earth materials. So that's why alternative sources for these

4:42 minerals outside China remain extremely limited. But yeah for not only India all the global automakers and the other regions also look for alternatives. what India can do. Uh I believe Indian OEMs and tier one suppliers may step up efforts to diversify sourcing from regions like Australia, Africa and Myanmar or develop local uh rare earth uh refining capabilities. So we know even like Australia after like procuring uh rare earth materials they send uh it to China for processing. So India can work around those things. uh if Indian government may also intensify extensions of own

5:28 earth materials reserves uh as well as they can invest on processing real earth materials right so that India may not be able to depend only on China for uh tackle this type of supply chain situation so we also see we have seen Europe so they have also reduced dependency so similar way India can follow. So, so sin my question coming to you is if you have to one reduce dependency with regards to rare or metal one of the option is you go to alternatives people are talking about Australia Brazil which could be alternatives not sure what's the quantum that they have the second alternative is there anything where there could be a workaround where companies are looking

6:14 at manufacturing uh parts or I don't know how would you put it ancillary you know spare parts where rare earth metal may not be used. Yeah, that can be the other alternatives also automakers are trying. So, so we know everyone thinks like EVs are reducing pollution. So many environmentalists are raising questions like mining and exploration are raising uh like uh pollution level right uh so that's why already automakers and governments are putting lots of efforts to find out alternatives uh for these rare earth

7:01 materials like yeah maybe hydro currently where India is focusing or any other alternative of of fuel that will also reduce pollution level and also act as alternative of rare earth material where China has uh lots of the dominance. Uh Mr. Man, this is the conversation around OEMs that we have seen the end product so to speak that is two-heer or four-wheeler. What is the kind of impact that we can see on autoco component makers the local autoco component makers which companies will be impacted and what which actually these companies we should watch out for in the future as maybe the winners from this and maybe also the people who will actually also lag in the autoco component space.

7:48 So yeah uh so all the like all types of vehicles will be impacted including passenger vehicles commercial two wheelers and three-wheelers but I am starting with passenger vehicles like as you already talked about like I'm so sorry I'm so sorry to step in I meant auto component makers people who make parts will are there any companies auto component makers that will be impacted by this particular ban so obviously auto components uh maker will be impacted because uh what will happen? So, so this ban is on like rare earth materials not on the finished goods or products. Maybe China will force uh the automakers to procure uh finished components like PMDC motors

8:33 from China. But we know like all the Indian players uh they build uh like for two-wheeler players they build motors uh inhouse and also uh also like passenger vehicles players. So that's why components players in this case passenger vehicles player takes help from TR1s or component players. So they may face difficulty uh because if they don't gain supply of real earth materials they would not be able to build permanent magnet motors and as well as battery sales what uh components players as well as Indian government is aiming for. So essentially you mean to say that uh companies that

9:19 make electric motors in India and companies that make battery management systems in India will be impacted by this. Do you expect these companies to maybe set up sub assemblies in China? Is that a likelihood? Is that a possibility? That will be also like uh this will then again geopolitical situation will come whether China will allow invest uh the foreign companies there or not or whether Indian government will be interested uh our Indian subasssembly players to put manufacturing unit there or not. uh but uh in the short term maybe Indian automakers will be forced

10:04 to buy uh finished goods from uh the suppliers or components players in China to cope up with increasing demand either we will see uh decrease in sales and also increase also on vehicle price that will also pass on to the end consumers. I think lots to watch out for. Thank you s so much for joining us on the show and putting that into perspective as well. Thank you uh Tashar as well to you know actually get the story to us because absolutely interesting which has been developing over the last couple of days. I think 90 days is what we're looking at. We had already passed on 60 days from this period and I think uh the the way the companies also responded to it in terms of the conference call is not

10:51 with too much concern and now suddenly the concern has shot up as well. If you think about it's essentially because you have entered in the last month. So people were expecting so as I mentioned in my link that about 30 uh applications already made but not one of them was approved. Yes, Mari Suzuki has its applications still in but now that we entered the last leg the last month some alarm bells have started ringing. But do you think that the alarm bells have come in late? I think yeah they have. they should have anticipated this uh bureaucratic round trip that happens in in China the step by step the steps that I mentioned if they're expecting about 45 days of a process happening only within China they should have said okay only the license will take 45 days let's start moving as

11:37 quickly as possible and I think perhaps that has not happened or perhaps there was oversight on the part of the manufacturers I think this is going to be interesting I think the next piece that you should be looking at is to tell all our viewers as to what this rare old magnet actually looks like you know where in terms of the auto component it is used because that's not something that the street is aware about right a lot of things like this just get discovered suddenly and that is market moving then but thank you so much for joining us and getting us this uh interesting piece in terms of what the OEMs could be facing from here on but let's quickly