China

On October 9, 2025, China’s Ministry of Commerce issued Notice 61, among the most far-reaching and aggressive extraterritorial export control measures ever applied to a raw material – any product manufactured outside China that contained Chinese-origin rare earth elements at or above 0.1% of the product’s value required a Chinese government export license before it could be shipped to another country.

Less than a month later, on November 7, 2025, as part of a de-escalation agreement, MOFCOM paused the notice until November 10, 2026 – a date that is less than two months away. The licensing requirements placed on the export of the seven medium and heavy rare earths (HREE) in April 2025 have remained in effect.

Diversification will not yield immediate results

Over the past year, the sector has seen a flurry of activity. The US signed MOUs with several resource-rich and large consumer economies, established procurement guarantees with price floors, and continued a record funding blitz to take equity stakes in multiple companies.

Europe, meanwhile, got its first rare earth magnet plant. The momentum is real, but the displacement measured in rare earth and magnet production remains modest. Major U.S. defence contractors and mineral suppliers warn they cannot meet the upcoming procurement deadline of January 1, 2027, to eliminate Chinese-sourced rare earth magnets from military supply chains. Even if top domestic projects like the USA Rare Earth and MP Materials facility hit their target capacity, it would satisfy barely 10% of total national demand.

India’s vulnerability

In our analysis of India’s 51 critical minerals covered in a previous article here, the HREE group came out to be the tightest in the dataset, one where India’s and the world’s exposure is the most acute with the fewest available options.

The minerals in this grouping share a common characteristic – each of them scored at or near the maximum on three vectors simultaneously: refining concentration, reserve concentration and extraction complexity. The refining process, consisting of multi-stage solvent extraction of chemically near-identical elements, is so complex that there is only one commercially operational HREE separation facility outside China right now – Lynas in Malaysia.

Because these minerals are needed in such small quantities – a few hundred to a thousand tonnes a year- blocking their exports hurts other countries more than it does China. China forgoes trivial revenue, while buyers lose a non-substitutable input for various downstream applications.

Stockpiling is a sound option

We recommended that, in the near term, joint stockpiling of these minerals and their associated magnets through international partnerships is a sound policy option. Theoretically, if China were to pursue extraterritorial application of its rare earths controls, even a magnet manufacturing facility in India subsidised by the Sintered Rare Earth Permanent Magnet (REPM) scheme and all imports of finished products could be negatively impacted.

Ultimately, technology substitution – making these minerals obsolete through alternative technology adoption – may be a clear pathway for the world to de-risk from China regarding these minerals.

Permanent magnets account for roughly 85–90% of global dysprosium and terbium consumption, with electric motors and generators driving most of that demand. The strong magnetic fields of neodymium magnets deliver maximum torque density and efficiency, but those fields weaken as the magnet heats up. Adding HREEs gives the magnets their high-temperature resistance, ensuring they don't degrade during heavy acceleration or continuous high-speed driving.

The world’s transition away from HREEs in permanent magnet synchronous motors (PMSM) is likely to be three-fold. (Link to the 3D visualisation and explainer work on the same is here).

Three channels to move away from HREEs

The first is to use less of them. Most dysprosium in a magnet is wasted. Coercivity is determined at the surfaces of the magnet's grains, where demagnetisation begins, not in their interiors, so alloying dysprosium uniformly through the material is not its most efficient deployment.

Grain boundary diffusion introduces it from the outside instead, concentrating it in a thin shell around each grain. The same heat tolerance can be achieved for a fraction of the HREE content, with less loss of magnetic strength. This is a fairly mature technology, and it is likely to be the fastest lever available because it requires no change to the motor at all.

The second is to change the magnet with minimal motor redesign. Ferrite magnets are weaker, but they are cheap, abundant and free of rare earths altogether. They are not suited for passenger cars, but India’s massive two- and three-wheeler market allows them to be widely adopted. Ola and TVS Motors are already moving this way.  India’s Ather announced plans to move to light rare earth motors, displacing HREEs.

The third is to change the motor. This would be the most expensive of the three options, forcing redesign of other systems. For passenger vehicles globally, where the EV market is concentrated, wound-field motors are likely to dominate the PMSM alternative market.  They provide the strong, controllable magnetic field a car’s main drive needs, and Renault and BMW already build them at volume.

Induction motors are likely to gain where ruggedness or occasional extra power matters and are a proven option for commercial vehicles. Switched reluctance is the least likely to spread widely in passenger vehicles. Achieving smooth acceleration with low noise and vibration requires substantial control and design work, and its best applications appear to be industrial.

However, as the world’s leading EV manufacturer, China’s motor choices will still shape global demand for these magnets in the near term, especially given China's past record of preferential treatment to local components. The prices of many HREEs in the West are several times those of Chinese domestic prices – dysprosium oxide reached approximately $2,100/kg and terbium oxide $4,800/kg in North America, giving Chinese companies less impetus to move away from them to heavier, bulkier and less efficient alternatives. The rest of the world will need to lead with technologically superior alternatives to the PMSM to reduce exposure to China’s motors and related incumbent technology.

(Shobhankita Reddy, Tannmay Kummar Baid and Pranay Kotasthane are researchers in technology geopolitics at the Takshashila Institution, Bangalore.)

Views are personal and do not represent the stand of this publication.