Bajaj Auto shares drop over 2.5% after Rajiv Bajaj warns of zero EV output in August; what's the China factor?

Shares of Bajaj Auto dropped over 2.5% on Friday after its Managing Director, Rajiv Bajaj, said that the company could see its electric vehicle (EV) production drop to zero in August due to China's restrictions on rare earth magnet exports.

The company’s EV portfolio, including the Chetak scooter and GoGo electric three-wheeler, has recently achieved market leadership.

“Should that happen, it would be not just a significant impact on our leading share and revenue, but also on our EBITDA as our EV portfolio is now reasonably profitable.”

Bajaj Auto has been severely impacted by the unavailability of rare-earth magnets, and Raiv Bajaj noted that smaller, low-volume manufacturers are less affected.

What are the alternatives?

“In the short-term, there are no alternatives,” Bajaj said. “In the medium-term, the two obvious alternatives are to look for an alternative to the high rare earth magnet and/or to look for an alternative to the source i.e. China. However, changing product design and/or the supply chain is easier said than done because it sets you back on what is already a rather steep learning curve in terms of quality and cost.”

Asked about possible cost implications and price pass-throughs, he said it is hard to estimate at this stage, but costs will rise depending on the viability of alternatives.

Bajaj added that suppliers and dealers, many of whom have invested heavily in EV infrastructure and production, could be hit very hard if the shortage becomes chronic.

China's rare earth restrictions

China, which controls over 90% of global rare earth processing, imposed export licence requirements for seven rare earth elements and finished magnets in April, tightening global supply chains. India sourced over 80% of its 540 tonnes of magnet imports from China last fiscal year.

The government is finalising a scheme to reduce dependence on Chinese supplies, offering incentives to companies converting rare earth oxides into magnets domestically, Union Heavy Industries Secretary Kamran Rizvi said recently.

Rare earth magnets, including neodymium-iron-boron (NdFeB), are critical for EV motors, braking systems, smartphones, and defence technologies.