How EV diplomacy between India and China runs on mistrust and minerals

Diplomacy and driving seem to have crossed paths in India — at least where Chinese automaker BYD is concerned. While a thaw appears to be setting in after bilateral ties went into deep freeze following the Galwan clash — which left 20 Indian and unspecified number of Chinese soldiers dead — the trust factor hasn’t fully returned. For now, it’s a case of classic doublethink, as George Orwell described in his novel 1984: one is compelled to believe that trust both exists and does not.

A diplomatic thaw but with limits

While India resumed issuing tourist visas to Chinese nationals starting last week after a five-year gap as the two countries continue to explore ways to mend their strained relationship to improve the “facilitation of people-to-people exchanges”, Bloomberg reported that BYD has been unable to obtain visas for its executives so far.

According to the report, the Chinese EV giant has been holding board meetings and high-level business interactions in Colombo in Sri Lanka and Kathmandu in Nepal, and even as far away as Singapore to keep its business running in India.

India has already turned down BYD’s proposed $1 billion joint venture to set up a manufacturing plant with a local partner. As a result, the Chinese automaker remains ineligible for tariff concessions on imported electric vehicles that are offered in return for significant domestic production commitments.

Critical minerals, critical vulnerability

Of course, it isn’t as one-sided as the Bloomberg report suggests. A report in The Economic Times, citing a State Bank of India study, notes that India’s key industrial sectors — ranging from transport equipment to electronics — rely heavily on rare earth imports, with China being the dominant supplier.

As a result, the ongoing curbs on Chinese rare earth exports could impact domestic production, weaken export competitiveness, and even affect the financial exposure of banks tied to these industries.

Rare earth elements such as samarium, gadolinium, terbium, dysprosium and lutetium are indispensable in the manufacturing of permanent magnet synchronous motors — a core component used in electric vehicles and hybrids. These motors are also integral to electric power steering systems and other auxiliary functions in conventional internal combustion engine vehicles.

China, which supplies nearly 80 per cent of the rare earth magnets used by Indian automobile manufacturers, halted export approvals for these critical components in April 2025. The move has triggered concerns across India’s automotive sector, which is heavily reliant on uninterrupted access to these materials.

India has ambitious plans to shift toward electric mobility, targeting 30 per cent of all new vehicle sales to be electric by 2030, according to the India Brand Equity Foundation.

However, recent data from the Federation of Automobile Dealers Associations shows that EV penetration stood at only 7.8 per cent across vehicle segments in FY25, up marginally from 7.1 per cent in FY24.

Given the current disruption in rare earth supply chains, India’s 2030 EV target suddenly appears much more difficult to achieve.

Although trade tensions and retaliation rarely benefit any industry in the long term, China’s mixed signals — offering cooperation with one hand and restrictions with the other — do little to foster trust or long-term stability in this critical supply relationship.

Tensions between India and China have spilled over beyond critical minerals. In March, China denied visas to several members of an Indian delegation — including local employees of BYD — who were scheduled to attend a major dealer conference in Shenzhen.

For BYD, which aims to sell 5.5 million vehicles globally this year, expanding its footprint in international markets is essential. But limited access to the fast-growing Indian market poses a serious obstacle to meeting that goal.

Tesla testing Indian waters

Meanwhile, Tesla recently inaugurated a showroom in Mumbai, yet it has not committed to local manufacturing. As a result, it faces import duties as high as 110 per cent on fully assembled vehicles. Although most of Tesla’s cars sold in India are imported, the steep tariffs — designed to protect domestic automakers — nearly double the cost for consumers.

In addition, India caps sales volumes unless a model is certified as roadworthy under local standards, further complicating entry for foreign manufacturers. Tesla is now looking to expand its presence in India with plans to open a second showroom in Delhi.

According to reports, the company has secured a 4,000-square-foot space in Aerocity near Indira Gandhi International Airport, with the monthly lease estimated at around Rs25 lakh.

VinFast enters quietly, but boldly

While Tesla and BYD continue to face regulatory and strategic challenges that are slowing their expansion in India, another foreign electric vehicle manufacturer has quietly entered the scene.

As reported by Mint, Vietnamese automaker VinFast has launched its first showroom in Surat, Gujarat — marking its formal debut in the Indian market. This move comes ahead of the launch of its upcoming manufacturing facility in Thoothukudi, Tamil Nadu, reflecting VinFast’s intent to establish a strong and sustained presence in India’s growing EV sector.