CAFE weight relief will hit EV momentum in India: M&M, Tata Motors

Draft CAFE norms distort level playing field, they added

Two of India’s top four carmakers — Tata Motors Passenger Vehicles (TMPV) and Mahindra & Mahindra (M&M) — have written to Union Power Minister Manohar Lal, saying the proposed special exemption for petrol cars under 909 kg in the upcoming regulation on carbon-dioxide emission would be a setback to the  country’s electric-vehicle (EV) journey.

 

M&M stated that the draft norms on corporate average fuel efficiency-3 (CAFE-3) would “reverse the current electric vehicle (EV) momentum” in India and result in carmakers “prioritising” strong hybrid cars to meet the emissions target.

 

TMPV stated that giving special exemption to cars weighing less than 909 kg would make it easier and cheaper for carmakers to keep doing incremental improvements in existing internal combustion engine (ICE) platforms rather than investing in advanced technologies such as battery systems and fuel cells.

 

Their letters, dated November 21, mentioned that any weight-based carve-out would “alter the level playing field” and have adverse effects on the country’s progress towards safer and cleaner cars. 

 

In its letter, TMPV said: “A single OEM (original equipment manufacturer) has a 95 per cent market share in cars below 909 kg. Many of these lighter cars also compete with cars from other OEMs in the same price segment. Specifically, incentivising cars based on weight creates a significant challenge to the level playing field in the passenger vehicle industry.” 

 

The CAFE framework sets average carbon-dioxide emission targets that each automaker’s fleet must meet, measured in grams of carbon dioxide emitted per kilometre (g/km). If a company fails to meet its target, the Bureau of Energy Efficiency (BEE), which works under the Ministry of Power, can impose stiff penalties. 

In June last year, the BEE had published the first draft of CAFE-3 norms, which would apply between FY28 and FY32. The Society of Indian Automobile Manufacturers (Siam), after a thorough discussion with its members, submitted its initial comments in December last year, seeking several changes. A few months later, Maruti Suzuki India Ltd (MSIL), India’s largest carmaker and the biggest small-car seller, independently approached the BEE, requesting relief for small cars through a weight-based exemption. This move has sharply divided the industry.

 

When asked about the letters of TMPV and M&M, an MSIL spokesperson said: “It is in full business interest for the makers of some gas-guzzling heavy vehicles to lobby against any kind of policy support towards smaller, cleaner and more fuel-efficient vehicles, but it is against the national interest.” 

 

TMPV, M&M and JSW MG Motor are the top three EV makers in India. JSW MG Motor had also written a similar letter to the Union Power Minister on November 21. None of the three companies responded to Business Standard’s request for a statement on this matter. 

 

While adoption was initially slow, EV uptake has risen sharply this year. In the first half of FY26, electric car sales increased to 91,726 units from 44,172 in the corresponding period a year earlier.

 

The MSIL spokesperson said: “More than 90 per cent of the global car markets like Europe, the United States, China, South Korea, and Japan have some provisions for the very small car protection in their regulations. China, Korea, Japan, Europe have this small encouragement on weight-based methodology and the USA does it on the footprint area of the car. So the ultra small car category protection is both scientific and a global normal."

 

Small cars consume much less fuel and emit much less carbon dioxide than big cars, so having this safeguard will help both carbon-dioxide reduction and fuel saving, the MSIL spokesperson added.

 

“The CAFÉ-3 draft expects only a 25 per cent reduction in carbon dioxide on larger heavier luxury cars of 2.5 tonnes but a whopping 44 per cent reduction on a lighter smaller car like the Alto with respect to CAFÉ-2 even after a small-car provision. In contrast, while moving from their CAFÉ-2 to CAFÉ-3 Europe asks for a 45 per cent reduction in CO2 target on 2.5 ton car and actually provides a relaxation of 21 per cent (18.5 gram) on an Alto like car,” the spokesperson added.

 

Just like TMPV, M&M said in its letter that creating “any such sub-category of vehicles based on weight” can “alter” the level playing field for industry players. Both — TMPV and M&M — mentioned that introducing such a weight-based exemption would risk slowing EV penetration in India because EVs are structurally heavier due to battery weight. If petrol cars weighing less than 909 kg would help companies comply with CAFE-3 regulation, they would have less incentive to move towards greener vehicles like EVs that require significant investments over a long period.

 

Both the companies said the government should stick with the way small cars had been defined under the goods and services tax (GST) regime. Since 2006, small cars have been defined under GST by length (less than 4 metres) and engine capacity (less than 1,200 cc for petrol and less than 1500 cc for diesel). “This longstanding definition was further reinforced in the latest GST 2.0 reforms, which have reduced GST on these cars from 28 per cent to 18 per cent...In this context, creating a new definition of small cars risks changes to other regulations, on which long-term manufacturing and supply chain investments have been committed,” TMPV noted.

 

M&M also mentioned that all investment had been done by the company on the basis of the GST definition of small cars. “If a concession must be given to ‘small cars’, then we propose that it must be in line with the GST definition," it added.

 

TMPV stated since roads in India were being upgraded for higher speeds and better traffic flow, there was a need for structurally robust vehicles. “The government has announced Bharat New Car Assessment Programme (BNCAP) with a view of encouraging highly safe cars...In the list of vehicles that have undergone BNCAP safety testing, none are below 909 kg,” it added.

 

On safety, the MSIL spokesperson said: “All small cars in India are tested and certified on the same crash test regulations as the big cars and these regulations are almost the same as in Europe till recently. In fact, Maruti Suzuki has gone beyond regulations and provides six airbags and electronic stability control as standard across all variants of almost all cars (97 per cent by volume). Since some manufacturers are not providing six airbags in lower variants they may have concerns on the safety of their cars.” 

 

“Small versus big cars has nothing to do with EVs. Maruti Suzuki is taking fundamental pioneering steps to maximise its EV volumes, irrespective of this,” the spokesperson added.

 

EVs vs strong hybrids

 

M&M, in its letter to Lal, said it was “deeply concerned” that the draft CAFE norms would “reverse the EV momentum in the country, built up through several Indian government’s policy initiatives and OEM investments”.

 

“The key to development of EV infrastructure and ecosystem at scale, is for policy to incentivise all OEMs to make EVs. By changing relative emissions between different powertrains (draft CAFE-3 reduces volume derogation factor (VDF) for EVs, increases VDF for (strong) hybrids, has non-zero tailpipe emission for EVs), the latest draft reduces the positive impact of EVs, thereby disincentivising investments in EV manufacturing, charging network and vendor ecosystem. The latest draft norms will result in OEMs prioritising (strong) hybrids to meet CAFE target,” it mentioned.

 

“Globally, OEMs meet CAFE targets by intentionally deploying EVs in their vehicle lineups, regardless of the size of the cars. With only three OEMs contributing 90 per cent of India's EV volumes — wider participation is needed,” it added.

 

The volume derogation factor (VDF) allows certain low-emission vehicles, such as hybrids or EVs, to be counted as more than one vehicle, effectively lowering the overall fleet emission figure on paper and easing compliance. 

 

In the June 2024 draft, the BEE had proposed raising the VDF for EVs from 3 to 4 while cutting it for strong hybrids from 2 to 1.2, which would have tightened the rules for hybrids and rewarded pure EVs.

 

However, the September 2025 draft keeps the VDF at 3 for EVs and 2 for strong hybrids, signalling a government preference for maintaining more favourable treatment for strong hybrids.

 

Further, the September draft stipulates that if a strong hybrid is capable of running on flex fuel, its VDF rises to 2.5, offering even greater relief.

 

Alongside this, the BEE has introduced a carbon-neutrality factor (CNF), a percentage discount on declared emission based on fuel type. Petrol vehicles using E20-E30 fuel blends get an 8 per cent discount, vehicles running on compressed natural gas 5 per cent, and flex-fuel or flex-fuel-compatible strong hybrids 22.3 per cent. 

 

A fuel blend that has at least 85 per cent ethanol is called flex fuel. M&M stated that the September 25 draft gave larger benefits to E20 and flex-fuel vehicles through the CNF, reducing the impact of VDF given to EVs. “This allows some OEMs to meet CAFE-3 norms without EVs, while OEMs who have invested heavily in EVs face tight compliance margins,” it stated.

 

“While a multipronged approach (E20, flex fuel vehicles, strong hybrids, etc) may seem to help in the short term, CAFE (norms are) an opportunity to send a clear signal on the government’s focus on destination technology (EV). Setting the EV super credit at 4 will reinforce national priority and improve EV penetration,” it added.

 

Toyota Kirloskar and M&M are the biggest sellers of strong hybrid cars in India.