CAFE 3 norms to take effect in 2027 — Key changes for India’s car industry

India's Corporate Average Fuel Economy (CAFE) rules are getting their third update. The CAFE 3 norms will apply from 1 April 2027 to 31 March 2032. The new rules will push carmakers towards more fuel-efficient and less polluting vehicles, while also offering incentives for electric vehicles, hybrids and flex-fuel cars.

What are CAFE norms

CAFE norms are fuel-efficiency rules that apply to a carmaker's entire fleet rather than to an individual model. Every year, the government calculates the average fuel consumption of all eligible cars sold by a manufacturer. This is also linked to the average weight of its vehicles and is compared with the prescribed fuel-efficiency and CO2 targets.

This means a manufacturer can sell a mix of efficient hatchbacks, hybrids, EVs and larger SUVs and balance the overall fleet average across them. It does not mean that every individual car has to meet the same efficiency target.

The current CAFE 2 norms have been in effect since April 2022. They are based on an average vehicle weight of 1,082 kg and require fuel consumption below 4.78 litres per 100 km, or 20.92 kmpl. This is equivalent to roughly 113 g of CO2 per km.

What changes under CAFE 3

CAFE 3 will make the fleet-average targets stricter in phases between 2027 and 2032. The exact target for each manufacturer will depend on the average weight of its fleet. Broadly, carmakers will have to make their overall vehicle range more fuel-efficient over the next five years. They can do this by improving petrol and diesel engines, increasing the share of hybrids and EVs, or adding technologies that improve efficiency across their range.

How EVs and hybrids get an advantage

CAFE 3 offers additional compliance credits, known as super-credits, for electric and alternative-fuel vehicles. This makes these vehicles more valuable when a manufacturer's overall fleet efficiency is calculated.

In simple terms, 10,000 EVs sold could count as an effective volume of 30,000 vehicles for compliance calculations. This does not mean the manufacturer has actually sold 30,000 cars. It is a system designed to give carmakers a stronger incentive to increase their EV and hybrid sales.

Will this mean more EVs and hybrids on sale?

It could, but CAFE 3 does not set a fixed number of EVs or hybrids that each manufacturer must sell. Carmakers can also improve their fleet average by making petrol and diesel vehicles more efficient.

They can use technologies such as start-stop systems, regenerative braking, more efficient gearboxes and 12V/48V motor-generators. The rules list 12 eligible technologies that can earn efficiency credits worth up to 9 g/km of CO2.

These include start-stop systems, Tyre Pressure Monitoring Systems, regenerative braking, six-speed or higher transmissions, efficient 12V/48V alternators and motor-generators, exterior LED lighting, advanced glazing, electric water pumps, high-efficiency air-conditioning, solar-reflective paint and PWM-controlled radiator fans.

How CAFE 3 will affect car buyers

For most buyers, there will be no immediate change. Buyers will not be required to switch to an EV, and an existing petrol or diesel car will not become non-compliant because of these rules. The impact will become more visible over the next few years as manufacturers plan new models, launches and sales strategies around the new rules. Buyers could see more hybrid and EV options, more fuel-efficient petrol and diesel engines, and wider use of technologies such as start-stop systems.

The new rules also require manufacturers to report CO2 performance under both the MIDC and WLTP test cycles. However, the government is yet to notify a separate MIDC-to-WLTP conversion factor specifically for CAFE compliance targets.

Stay updated with all the latest happenings & developments in the automotive world by joining our official AUTOVERSE WhatsApp community.