New CAFE III Norms Pave Way for Accelerated EV Adoption

The government's draft notification on CAFE III 2027 balances automaker interests with a policy shift towards fast-tracking electrification in the passenger vehicle market. This new framework provides flexibility in meeting emissions standards while encouraging EV adoption, backed by supportive policies and rising fuel prices. Yet, challenges persist for smaller OEMs.

The government's new draft notification on Corporate Average Fuel Efficiency III (CAFÉ III) 2027 has been described as a balancing act between automakers' interests and a policy shift towards rapid electrification of passenger vehicles, as per a Nomura report. The revised framework offers original equipment manufacturers (OEMs) more flexibility by assessing compliance over three-year periods rather than annually.

According to the Ministry of Power's draft notification released on Thursday, the compliance periods are set for FY28-30 and FY30-32, allowing manufacturers extra time for electric vehicle (EV) rollouts. This move aligns with the government’s strategic focus on faster EV adoption, while accommodating industry concerns.

Nomura indicates that India's EV adoption is nearing a critical point, driven by robust demand and expanded model availability, alongside supportive policies and increased fuel prices. Passenger vehicle EV penetration in India is projected to grow significantly, with expectations of 8.8% by FY28 and 12.7% by FY30.

Key changes from previous drafts include a reduction in super-credit for hybrid vehicles from 2.0x to 1.6x and the removal of a 3g CO₂/km concession for small cars. Furthermore, 12 new derogation technologies are introduced, potentially lowering the EV mix requirement by 2-4% for OEMs.

The report notes OEMs can buy compliance credits from the Bureau of Energy Efficiency, with costs starting at Rs 2,500 per g CO₂/km in FY28 and rising by FY32. Delhi's EV policy, providing tax exemptions and bans on petrol two-wheelers, further reinforces the shift towards electrification, with potential for accelerated adoption across other states.

Nonetheless, the CAFE III framework might disadvantage smaller OEMs without a reliable domestic EV lineup, heightening compliance risks and possibly creating an uneven competitive field.