The government released the latest draft of the Corporate Average Fuel Efficiency (CAFE) 3 norms on 16 July, setting off fresh debate over the stringent emission standards for the auto industry. As carmakers scramble to meet the tougher norms, Mint unpacks the details and what they would mean for buyers in the years ahead.
What are CAFE norms?
Simply put, CAFE norms were brought in to force carmakers to launch cleaner vehicles and promote their sales. By putting targets on each manufacturer to limit average carbon dioxide emissions from their sales, it nudges them to improve efficiency of their traditional fuel vehicles and bring in cleaner technologies such as electric vehicles (EVs), CNG, hybrids and flex-fuel (running on high ethanol-blends) ones. The more the clean fuel vehicle sales, the more comfortable an automaker is in meeting the target.
India first saw CAFE’s first iteration in 2017 for five years till 2022, with the second one in place till 2027. The third round, seen the stiffest one, is set to kick in from 1 April 2027.
How will these change India’s market?
Expect more electric, hybrid and flex-fuel and CNG vehicle launches in the coming years. Mint reported earlier that the top carmakers have set an ambitious goal of achieving more than half their sales through EVs, hybrids and CNG-fuelled cars by 2030, which will require them to increase the contribution of cleaner vehicles by up to 10 times over the next five years. From Maruti to Mercedes, expect more carmakers to bring clean fuel technologies at a rapid pace over the next few years. This means more clean-tech options for buyers, but the strict targets may also force carmakers to discontinue some traditional diesel vehicles whose efficiency could be tough to improve.
So, will vehicle prices increase now?
Yes, but it won’t be drastic. Given that norms tighten progressively over five years and companies have tactical options to meet these norms even without aggressively launching new clean fuel models, they will have the space to hike prices gradually. Moreover, as EVs, hybrids and flex-fuel are more expensive than conventional fuel vehicles, the overall market prices may rise in the near future, unless EVs see a drastic decline. “OEMs add efficiency technologies to meet norms, increasing vehicle cost and retail prices,” ratings firm Icra said in a 17 July report.
Will two-wheelers also have CAFE-like norms in future?
Yes. India plans norms similar to CAFE for two-wheelers that may force mobike and scooter makers to also focus on clean technologies. While EVs have already started gaining share in the portfolio of legacy two-wheeler firms, the introduction of these norms could see launch of more powertrains, including CNG and hybrids. Sector leader Hero MotoCorp has already flagged these norms as a risk, as the upgrade costs could force it to hike prices in the price-sensitive segment.
What happens if automakers fail to comply?
There are strict penalties in place, with ₹25,000-50,000 fines per non-compliant vehicle sold. And then, there’s an additional flat ₹10 lakh penalty. So, expect carmakers to adhere to these norms and introduce more of clean-fuel technologies. To be fair, the government has given some leniency through gradual tightening of targets, counting each clean fuel vehicle more than once through ‘super credits’, and the likely option of credit trades with peers or the regulator if falling short of targets.