CAFE-3 is here: Why more EVs, range-extenders and hybrids could hit India’s roads

The government has notified the Corporate Average Fuel Economy (CAFE) norms for passenger vehicles, offering greater emissions flexibility to smaller cars than what was proposed in earlier drafts.

The CAFE-3 will come into effect from April 1, 2027, and remain applicable up to March 31, 2032. The norms set annual average fuel-consumption targets for each automaker based on the weighted average kerb weight of its fleet. The revised target line has been flattened to provide a more balanced, weight sensitive approach, with relatively softer targets for lighter vehicles and greater fuel efficiency requirements for heavier vehicles, the ministry of power said in a press release.

The rules provide substantial super credits for electrified vehicles. Battery electric and range-extended electric vehicles receive a 3x volume factor, while plug-in hybrids and strong hybrids running on flex-fuel ethanol get 2.5x and strong hybrids get 1.6x. Flex-fuel vehicles receive a 1.1x factor.

The norms also provide carbon-neutrality factors for alternative fuels. E20 and higher ethanol-blended petrol vehicles get an 8% adjustment, flex-fuel ethanol vehicles get 22.3%, while CNG vehicles get a 5% adjustment or the notified CBG blending percentage, whichever is higher.

Indian automakers are expected to roll out range extended electric vehicles soon as the technology is treated on par with EVs with 3 super-credits. Automakers are likely to launch more plug-in hybrid vehicles and strong hybrid flex-fuel vehicles as these vehicles will now get 2.5 super-credits.

Automakers can also claim efficiency benefits for technologies such as start-stop systems, tyre-pressure monitoring, regenerative braking, six-speed or higher transmissions, efficient alternators, 12V/48V motor-generators, LED lighting, advanced glazing, electric water pumps, efficient air-conditioning, solar-reflective paint and PWM-controlled radiator fans. Each eligible technology can provide a 1 g CO₂/km reduction, subject to an overall cap of 9 g CO₂/km.

The permitted fuel consumption becomes progressively tighter between FY28 and FY32. The fuel-consumption benchmark is tightened from 3.996 litres per 100 km in 2027–28 to 3.3273 litres per 100 km in 2031–32, representing an improvement of around 16.7% over the period.

Under the new norms, an automaker's annual weighted-average actual fuel consumption must be equal to or lower than its prescribed target.

The reference weight has been increased from 1,082 kg under existing norms to 1,229 kg under new CAFE norms, an increase of around 13.6%, reflecting the evolving characteristics of the passenger vehicle fleet.

Manufacturers that perform better than their targets generate credits, while those that fall short accumulate debits. Credits can be traded or exchanged with other manufacturers, allowing automakers with a surplus to help those facing a shortfall. Manufacturers can also buy credits from the Bureau of Energy Efficiency to offset debits, with the price rising from ₹2,500 per g CO₂/km in FY28 to ₹4,500 in FY32.

CAFE 3 will operate through two compliance blocks: a three-year first block from FY2027-28 to FY2029-30 and a two-year second block from FY2030-31 to FY2031-32. Credits and debits can be carried forward within the relevant block, but unsettled credits lapse at the end of the block.

From April 2027, manufacturers will also have to report CO₂ performance under both MIDC and WLTP for each model. Small-volume manufacturers producing or importing fewer than 1,000 eligible vehicles in a reporting period are exempt from meeting the specific CAFE target, although they must continue reporting their actual fuel consumption.

“We welcome the government’s notification of the new CAFE-III norms. Following extensive dialogue between the government and industry, the framework strikes a pragmatic balance between what is necessary for the environment and what is achievable for the industry, while strengthening India’s energy security. The targets are appropriately ambitious and provide a clear trajectory through 2031-32," R. Velusamy, President - Automotive Business, Mahindra & Mahindra, said in a statement.

"We also welcome the inclusion of a compliance block, technology credits, cleaner-fuel benefits and super credits for EVs and other advanced technologies. At Mahindra, we are confident in our ability to meet these norms, backed by our sustained investments in technology, electrification and cleaner mobility," Velusamy added.