Auto Stocks Rise on Hopes of China Granting Rare Earth Licences to Indian Firms

Shares of leading auto manufacturers, including Bajaj Auto, Hero MotoCorp, Mahindra & Mahindra, Tata Motors, and TVS Motor, rose up to 2 percent in morning trade on Tuesday following reports that China may grant rare earth export licences to Indian auto component companies. If confirmed, the move could significantly ease supply constraints that have plagued the electric vehicle (EV) industry, where rare earth elements are crucial for motors and battery systems. Automakers have been under pressure due to rising input costs and production delays stemming from limited access to these critical materials. Rare earth elements, vital to technologies like EVs, smartphones, and wind turbines, are difficult and expensive to extract. China, which accounts for around 90 percent of global magnet production, has historically used export controls on these materials as part of its broader geopolitical strategy, especially in response to trade tensions with the U.S. India, despite holding the fifth-largest rare earth reserves globally (6.9 million metric tonnes), imported $13.1 million worth of rare earth compounds in 2023. Domestic production remains minimal, with only 2,900 metric tonnes produced last year, highlighting the absence of a robust local supply chain. Earlier this week, Commerce Minister Piyush Goyal, speaking in Bern, Switzerland, confirmed that India is actively pursuing solutions through diplomatic channels and trade negotiations. The Indian embassy in China is already in discussions with Chinese officials, while the Commerce Ministry is also engaged in finding long-term alternatives and partnerships. The possibility of a breakthrough in rare earth access comes as a timely boost for India’s EV ambitions and could help stabilize production and pricing in the auto sector, which has faced considerable volatility in recent quarters.