CAFE 3: Govt issues draft rules; small cars and EVs to play key role

The Union government has rolled out the draft Corporate Average Fuel Efficiency 3 (CAFE 3) standards for passenger vehicles, which will apply from April 1, 2027, to March 31, 2032. Although the new rules set relatively stricter fuel-efficiency targets for carmakers, there are extra benefits for small petrol cars and electric vehicles (EVs).

What do the new rules mean?

As per the notification, the rules cover all M1 category passenger vehicles -- cars designed to carry passengers with a seating capacity not exceeding nine persons, including the driver.

Every carmaker will have to meet an annual fuel-efficiency target, which will be linked to the average weight of the vehicles it sells. Lighter vehicles will naturally face easier targets, while heavier vehicles will make things tougher for the company. Starting April 2026, companies will need to submit fuel-efficiency and carbon dioxide (CO₂) data for all their models, so that compliance can be tracked once the rules kick in.

How are the new targets worked out?

Under the draft CAFE 3 rules, the annual fuel-efficiency target for carmakers is measured in petrol-equivalent litres per 100km. The number depends on the average weight of all cars a company sells in a year. The formula is: Target = 0.002 × (W - 1170) + c. Here, W is the average fleet weight, 1,170kg is the reference point, 0.002 is a fixed multiplier, and 'c' is a constant that changes every year. Since 'c' continues to decrease from FY28 to FY32, the rules will become stricter over time.

The constant starts at 3.7264 in FY28, then drops to 3.5737 in FY29, 3.4573 in FY30, 3.2224 in FY31, and 3.0139 in FY32. The benchmark will keep tightening year after year, irrespective of the type of vehicles a company sells.

Interestingly, the earlier draft of June 2024 had suggested a fixed cap of 91.7 g/km CO₂ under WLTP test cycles. That approach has now been dropped. Instead, the government has gone with a weight-based formula that gets tougher annually.

Example of target calculation

Take a carmaker whose fleet averages 1,200kg in FY28.

Target = 0.002 × (1200 – 1170) + 3.7264

= 0.002 × 30 + 3.7264

= 0.060 + 3.7264

= 3.786 litres/100km

This means that, on average, the company’s cars cannot consume more than 3.786 litres of petrol-equivalent fuel to cover 100km.

Why fleet weight matters?

Fleet weight makes a big difference. In FY28, a small car-led company with an average fleet weight of 900kg would have a target of 3.126 litres/100km. A mid-weight fleet of 1,200kg would be at 3.786 litres/100km, while an SUV-heavy fleet averaging 1,500kg would be allowed 4.386 litres/100km.

Small cars get special relief

The draft gives specific relief to small petrol cars. Models with engine capacity up to 1,200cc, length below 4 metres, and weight up to 909kg will be allowed to deduct 3 g/km from their declared CO₂ value, with a cap of 9 g/km in a year.

Since fuel-efficiency targets are finally measured in litres/100km, the 3 g/km cut works as an adjustment at the CO₂ stage. The reduced CO₂ figure is then converted into fuel consumption using the government's notified formula, which effectively lowers the car's fuel-use number for compliance.

Because these cars are also lighter, they help bring down a company's average fleet weight, making the overall targets easier to achieve.

The country's largest carmaker, Maruti Suzuki India, stands to gain the most from this as it has a wide portfolio of small cars, including best-sellers like the Alto K10, WagonR, Eeco, Swift, Baleno and Dzire.

Even Hyundai Motor India sells small cars like the Grand i10 Nios, Exter, i20 and Aura. Tata Motors offers small cars like the Tiago, Tigor, Altoz and Punch.

Extra credit for EVs and hybrids

The biggest gainers will be EVs. Each EV sold will be counted three times while calculating a company's average, thanks to 'super credits'. Range-extender EVs also get the same treatment. Plug-in hybrids will be counted 2.5 times, and strong hybrids twice. Flex-fuel ethanol cars are given a smaller multiplier of 1.5.

These multipliers mean that selling even a limited number of EVs or hybrids can have a bigger impact on a company's compliance numbers than their actual sales volume.

Tata Motors has the largest EV portfolio with models like the Tiago.ev, Tigor.ev, Punch.ev, Nexon.ev, Curvv.ev and Harrier.ev. Mahindra & Mahindra offers EVs like the BE 6, XEV 9e and XUV400. JSW MG Motor India sells EVs like Comet, ZS and Windsor.

Maruti also offers strong hybrid technology in the new Victoris, Grand Vitara and Invicto; Toyota in the Urban Cruiser Hyryder and the Innova Hycross, and Honda in the City e:HEV.

Benefits linked to fuel type

The draft also brings in something called carbon neutrality factors, which cut down reported CO₂ numbers based on the fuel used. Petrol cars that run on E20 to E30 fuel will get an 8% reduction. Flex-fuel ethanol cars and strong hybrids running on ethanol will get a bigger 22.3% reduction. CNG cars will get a 5% cut, and possibly higher if compressed biogas (CBG) blending is introduced in future.

Diesel cars, on the other hand, will be converted into petrol-equivalent values using a factor of 1.1168. This makes their reported fuel consumption higher compared to petrol cars.

How does it affect different vehicles?

Small petrol cars will benefit the most because of their lighter weight and the extra 3 g/km relaxation. Larger SUVs and premium cars, being heavier, will push up the company's average fleet weight and make the targets stricter. CNG cars will gain from the 5% CO₂ cut, while flex-fuel and hybrid models get both reductions and multipliers. EVs get the maximum boost with a 3 times credit in the calculation.

Flexibility for companies

The draft allows carmakers to work in pools of up to three companies to meet targets jointly. Small manufacturers selling fewer than 1,000 cars in a year will not be covered under these rules. Automakers can also claim extra credits for introducing new CO₂-saving technologies, subject to a cap.

The Bureau of Energy Efficiency (BEE) under the Ministry of Power will be in charge of monitoring compliance. Testing will continue to be handled by the Ministry of Road Transport and Highways. The government has also said it may revise the reference mass used in the formula in 2026, based on updated data.

CAFE 3: What different vehicles get?

Source - BEESource - BEE

CAFE 3 vs CAFE 2

The proposed CAFE 3 norms are stricter than the current CAFE 2 standards, which stay in force till March 2027. While CAFE 2 had a flat CO₂ target, CAFE 3 links the limits to a company's fleet weight. The new draft also adds special relief for small cars and expands incentives for EVs, hybrids, CNG, and flex-fuel vehicles through super-credits and carbon neutrality factors.