There’s a blind spot in India's electric vehicle (EV) ambitions, and it sits deep inside the battery.

Lithium, neodymium, dysprosium and praseodymium are rare earth elements that power EV motors, batteries and electronics. And India imports most of them from a single source: China.

In late 2024, China tightened its grip on rare earth exports, citing national security concerns. It was a sharp reminder of where power lies in the global clean-tech race. China controls more than 70% of global rare earth production and around 90% of refining. India’s $240 billion auto industry just found itself exposed. Although Indian automobile manufacturers frontloaded magnet imports in March and April this year, up 20% and 87% year-on-year, respectively – those stockpiles are expected to run out soon.

This is no time for wishful thinking. If India is serious about electrifying transport and building clean-tech self-reliance, it must first learn how others played this game.

Smart diversion tactics by the US: did it work?

Initially, the US improvised by importing through the third-country route when China pulled the plug. US companies quietly redirected supply chains through third countries, mostly Thailand and Mexico.

Between December 2024 and April 2025, US imports of antimony oxides (a type of rare earth material) from the two nations reached approximately 3,834 metric tonnes, more than almost the previous three years' amounts combined.

None of it was listed as coming from China.

That’s because it wasn’t, at least on paper. In reality, the materials were shipped from China to these intermediaries. There, they were relabelled and reexported to the US, often disguised as unrelated goods such as zinc, iron or even art supplies. US regulations permit this kind of rerouting, so long as shipments are licensed. And Beijing has no easy way to stop it.

Reuters traced over 3,366 tonnes of antimony products between December and May to Thailand's Unipet Industries, a subsidiary of Chinese firm Youngsun Chemicals. The origin of the cargo? Omitted from shipping documents. The destination? US buyers who didn’t have to deal with Chinese customs directly.

However, this strategy of rerouting through third countries did not remain effective for long. The Chinese government tightened export controls, making it increasingly difficult for the US to procure materials through transshipment channels. Starting May 2025, the Chinese Ministry of Commerce launched a dedicated campaign against the smuggling and illicit transshipment of these strategic items. Authorities intensified customs checks, investigations and legal actions against domestic and overseas entities involved in rerouting goods to the US.

Eventually, the US had to yield, leading to the much-anticipated Trump–Xi phone call in early June.

As part of the deal, China agreed to remove the restriction of rare earth material exports to the US. In return, Xi called for the US and China to “seek win-win results in the spirit of equality and respect each other’s concerns”, while urging Washington to “remove the negative measures taken against China”. So the deal was made with Trump stating, “Our deal with China is done, subject to final approval with President Xi and me”.

As part of this deal, the US lifted restrictions on the export of chip-design software and ethane to China. This was a big bargain for China. Tariffs were also reduced to levels seen under the Biden administration, except for firms found to be excessively exporting fentanyl to the US, with an additional tariff of 20% imposed on them.

China's strategy: wait and watch

China itself knows this playbook of protectionism quite well. After the 2008 global financial crisis and a rising tide of US tariffs, especially under the Trump administration, Beijing began moving production out of mainland China. But it wasn’t a retreat; it was rerouting.

First, Chinese manufacturers shifted operations to lower-cost regions like the Greater Mekong subregion, Central America and parts of Africa. That kept their goods globally competitive while sidestepping trade friction.

Second, by relocating factories, Chinese firms avoided direct hits from tariffs. In April 2024, US trade representative Katherine Tai accused China of funnelling steel products through Mexico to circumvent trade restrictions. US imports from Mexico reached $475 billion in 2023 – up almost 5% from the year before. Imports from China dropped by 20% to $427 billion.

Chinese foreign direct investment in Mexico tripled to $3.7 billion in 2023 when compared to the decade-long average, as many firms – including EV giants BYD and Chery – set up shop there. Container traffic from China to Mexico rose by 22% year-on-year in January to August 2024. China had simply redrawn the map to stay in the game.

Third, China has also used global investments in Africa and Asia to ease pressure on its own energy and raw material needs. In Myanmar, Chinese companies built six hydropower plants and a thermal power station. In Vietnam, they invested in power transmission infrastructure and copper processing facilities. The payoff? Exports from Vietnam to the US rose by around 20% CAGR between 2018 and 2024.

For China, foreign investment isn’t just about access. It’s about leverage.

India’s turn

So, what must India do?

Step one: secure alternatives. India should work with friendly countries that can serve as neutral conduits for rare earths, especially those with stable ties with both India and China. This buys time, but it’s a temporary fix.

Step two: invest overseas. Africa holds vast, underdeveloped reserves of lithium, cobalt and copper. India is already eyeing assets in Zambia, Congo and Australia. That effort must be scaled up and fast-tracked. Australia, the world’s third-largest producer of rare earth elements, should be a strategic partner.

Step three: build strength at home. That means encouraging new entry into mining, funding rare earth processing and creating a research ecosystem to develop substitutes. The government’s production-linked incentive schemes under Atmanirbhar Bharat must go beyond EV assembly lines and start backing rare earth supply chains from the ground up.

Efforts must be made to identify close substitutes for rare earth materials, such as neodymium, which is found in abundance in India and, with proper R&D, can be developed into more effective rare earth magnetic materials. India must also deepen cooperation with countries like the US, Japan and Australia, not just for raw materials, but for tech and research support. China may dominate rare earth tech today, but the gap is not insurmountable.

Step 4: Adopting a more liberal approach to Chinese FDI inflows, but with a binding clause requiring technology transfer as a condition for investment. In fact, the Economic Survey 2024-25 had made a strong case for seeking FDI from Beijing to boost local manufacturing and tap the export market.

If India wants to lead the global EV transition, it can’t afford to be a bystander in the rare earth game. These materials may lie buried in foreign soil, but the strategy to secure them can be hammered out at home. Because no matter how sleek the car, it won’t move an inch without the right minerals.

The author is professor at Mahindra University, Hyderabad.

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