China is open to Indian auto component makers securing a licence to access rare earth materials, according to people aware of the matter, even as local carmakers ramped up production till stocks last.At least 10 applications are at the China stage of approvals, the people said on the condition of anonymity as the discussions are private. These suppliers have received favourable endorsements from the Chinese embassy—a key step in procuring a rare-earths licence from China’s Ministry of Commerce, the people said. Separately, the Indian embassy is facilitating the licence approval process in Beijing.In May, the Society of Indian Automotive Manufacturers—in consultation with India’s original equipment manufacturers—drew up a list of more than 30 suppliers which can apply for a licence and submitted it to the government. Most of them are Tier-I suppliers registered with the Automotive Component Manufacturers Association of India.No licence has been granted so far, the people confirmed. An approval is dependent on suppliers meeting the end-use clause of local, non-military operations.Phone calls to India’s Ministry of Heavy Industries remained unanswered. SIAM refused to participate in this story citing the sensitive nature of the discussions.The SituationOn April 4, as a reaction to the US’s steep tariffs, China imposed a stricter new end-user certification process for supply of rare earth materials. An import licence will be issued only if a supplier meets the end-use clause of local, non-military operations. The certification process is arduous and can take up to 45 days.That move has threatened to upend vehicle production from Japan to India and Europe. In Japan, Suzuki Motor Co. Ltd. had to temporarily halt production of the Swift hatchback after a key supplier ran out of rare earth magnets. In India, automakers face an added layer of uncertainty, given the country’s complicated ties with China.To be sure, “you can’t build a modern car without rare earths”. Magnets made with rare earth elements are used in anything with a motor in a car—from windows, mirrors and seats to oil pump sensors, air conditioning and speakers. And China has a near monopoly here, housing more than 90% of the global refining capacity for rare earths.Prep WorkLocal carmakers have ramped up production till rare-earth stocks last.According to dealers NDTV Profit spoke with, carmakers are stocking up dealerships with additional inventory in the event of supply shock by mid-July.“Scaling up (production) won’t be an issue as average capacity utilisation is 75% or so,” a dealer in Delhi NCR told NDTV Profit. “What can become an issue is the level of inventory that’s already at 50-55 days.”“In case there’s a disruption in vehicle manufacturing in July or August, the stocks will last until the beginning of the festive season in September.”But India’s top automakers have indicated minimal to no impact.On Tuesday, Toyota Kirloskar Motor India Pvt. Ltd. met industry stakeholders in New Delhi to assure them of continued production. Tata Motors and Mahindra & Mahindra Ltd. have claimed minimal impact. The South Korean parent of Hyundai Motor India Ltd. reportedly has a rare earths stockpile that can last a year.But Maruti Suzuki India Ltd. may see some impact.According to Reuters, India’s largest carmaker has cut near-term production targets for its first electric car e-Vitara by two-thirds because of rare earths shortages. The company now plans to make 8,200 e-Vitaras between April and September, versus an original goal of 26,500, according to a company document seen by Reuters.“This (rare earths crisis) is a wake-up call and not an operational challenge,” Arun Malhotra, an independent auto industry expert and former managing director of Nissan Motor Corp. in India, told NDTV Profit over the phone. “What India now needs is to de-risk itself from the supply chain concentrated in China and boost localisation, as it did after the semiconductor crisis during the pandemic.”Vocal For LocalTo be sure, a rare earths policy is said to be in the works.The heavy industries ministry is working on a policy to promote domestic processing of rare earth materials, one of the people cited above said. It would be similar to production-linked incentive schemes that are already in effect for sectors such as textiles to pharmaceuticals. A PLI scheme helps achieve cost parity with imports and boost local demand.According to Reuters, the outlay of such a PLI scheme for rare earths is yet to be decided. The government is likely to meet industry officials next week to finalise the details.But even if the government fast-tracks the process, building a supply chain for rare earths in India would take years. The dependence on China is a given until the end of this decade.India has the world’s fifth largest reserves of rare earths at 6.9 million tonnes, according to the US Geological Survey, but local processing and refining operations is next to negligible. Only one public-sector undertaking, IREL (India) Ltd., is involved in the production of three rare earths but none of them find application in the local automobile sector.Hindustan Zinc CEO Expects 30% Of Revenue From Rare Earth Minerals In Five Years. Read more on Auto by NDTV Profit.