The recent PM E-Drive notification mandates deep localisation of traction motors and controllers by September 2026.

This development represents a structural change in manufacturing, particularly for Tier-1 suppliers that remain dependent on imported subsystems and materials such as high-grade rare earth magnets. A risk arises from China's restrictions on the export of heavy rare earth (HRE) materials used in high-performance IPMSM motors, especially for N2 and N3 segments. The policy indicates the need to assess the impact, associated risks, and to establish mitigation strategies covering supply chains, technology, and manufacturing.

The Ministry of Heavy Industries has revised the phased manufacturing programme for electric trucks under the PM E-Drive scheme, introducing new domestic production requirements for key components in the N2 and N3 categories. The initiative is intended to increase localisation activities in EV component manufacturing through a phased approach, aligned with existing EV supply chain practices.

It is also expected to reduce imports, which currently constitute a notable share of overall EV manufacturing.

Key highlights and policy focus

The Ministry of Heavy Industries issued a notification amending the phased manufacturing programme (PMP) for electric trucks under the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-Drive) scheme. The revised provisions apply to N2 and N3 category electric trucks. These include mandatory domestic manufacturing of rotor, stator, shaft, enclosure, connectors, and cables, along with domestic assembly of traction motors and inverters, software flashing, and controller integration in India. Full compliance is required by September 2026.

Scope of amendments

The amendment updates requirements for key components used in electric trucks, including traction motors, traction motors integrated with transmission systems, and traction motor controllers with inverters. These changes revise earlier notifications issued in 2024 and 2025 and introduce phased timelines for domestic manufacturing.

Traction motor requirements

Under the updated regulations, from September 1st, 2026, manufacturers will be required to undertake domestic production of traction motors. This includes the assembly and integration of rotor and stator components, shafts and bearings, enclosures, connectors, and cables. These requirements apply to both N2 and N3 categories, including configurations where the traction motor is not integrated with the transmission.

Integrated motor and transmission rules

For systems in which the traction motor is integrated with the transmission, a phased approach has been defined. From September 1st, 2025, the assembly of traction motors, transmissions, controllers, and associated software must be carried out within India. From September 1st, 2026, additional requirements will apply, including domestic manufacturing of motor and transmission components, assembly of electronic parts such as semiconductors, and integration of high-voltage connectors and control systems.

Motor controller and inverter requirements

For traction motor controllers, including inverters, manufacturers must ensure domestic integration of assembled printed circuit boards, connectors, and related components from September 1st, 2025. From September 1st, 2026, the requirements expand to include the assembly of semiconductor components, integration of high-voltage systems, and installation of software and firmware within India. These provisions apply to both standalone controllers and those used with integrated transmission systems.

Key risks and impact for tier-1 companies

The revised guidelines require independent import of magnets for rotor integration. Current practices in the N2 and N3 segments rely on IPMSM topology, which uses permanent magnets based on HRE materials. These materials are required for rotor-magnet assembly and are predominantly sourced through imports. This creates uncertainty for Tier-1 electric motor manufacturers regarding the availability of HRE magnets.

HRE elements such as dysprosium and terbium are required for high-temperature performance in IPMSM motors. China dominates the global supply and has imposed export controls, resulting in a supply constraint. The following risks arise from HRE magnet dependency:

- IPMSM motors rely on NdFeB magnets containing dysprosium and terbium (HRE).
- China controls more than 85 per cent of the global HRE supply.
- Export restrictions affect rotor manufacturing processes.
- High-performance segments, including trucks and buses, are more exposed.

Specific impact on tier-1 manufacturers

Supply chain disruption:
There is a gap in domestic availability of the magnet and rotor ecosystem. Given the industry's dependence on IPMSM topology, ensuring immediate magnet availability is challenging. This may lead to component flow disruptions, operational impacts due to line stoppage risks, delays in vendor qualification, and inventory imbalances, including stockpiling.

Cost escalation:
Magnet prices may increase by two to three times due to limited global HRE supply, export restrictions, licensing delays, and rising demand driven by global EV adoption. This may result in margin pressures, particularly for existing OEM contracts with fixed pricing structures, where cost pass-through mechanisms may be limited. This may also lead to pricing conflicts, as OEMs expect cost reductions through localisation while suppliers face higher input costs.

Production delays:
Upgrading existing manufacturing facilities or establishing new production lines may result in delays due to process validation, line approvals, prototype batch validation, and licensing or certification requirements. Revalidation under PM E-Drive, along with potential design changes, may require additional certification processes, extending production timelines. Delays in upstream supply chain alignment, including magnet procurement and equipment lead times, may add to these challenges.

OEM contract risks:
OEM incentives are linked to compliance with PM E-Drive requirements. Failure to meet localisation criteria or delivery timelines may result in the loss of supplier nominations or onboarding opportunities. OEMs may also renegotiate pricing, impose stricter localisation commitments, or enforce penalty clauses. Supplier selection may prioritise supply assurance over cost efficiency or technological specificity.

Localisation compliance pressure:
The policy places greater emphasis on process-level localisation rather than value-based localisation. This is expected to increase capital expenditure requirements, require capability assessments across manufacturing stages, and impose strict timelines. The impact may evolve across different phases: short-term supply disruptions and cost increases; medium-term capital-intensive localisation efforts; and longer-term industry consolidation, with fewer Tier-1 players alongside potential exits, acquisitions, or joint ventures. The policy introduces a stricter regulatory framework for the industry.

Overall objective

The revised PMP framework establishes a phased timeline to increase domestic value addition in electric truck manufacturing, with a focus on localising key components within electric powertrains.