- The Ministry of Power has notified CAFE-III rules for M1 category vehicles from 2027-2032
- Fleet-average fuel consumption targets tighten annually from 3.996 to 3.327 litres/100 km
- Super credits for BEVs set at 3x, with other categories mostly as per draft proposals
The Ministry of Power has officially notified the Corporate Average Fuel Economy Phase III (CAFE-III) regulations for M1 category passenger vehicles, i.e., vehicles carrying up to eight passengers in addition to the driver. Applicable for a five-year window from April 1, 2027, to March 31, 2032, the final framework mandates a steady, annual tightening of fleet-wide fuel efficiency targets and establishes a formal credit trading mechanism administered by the Bureau of Energy Efficiency (BEE).
Under the new norms, small cars will not get an exemption. To be clear, the draft had proposed a separate exemption for cars below 990 kg. In the final notification, the average weight of a carmaker's fleet will be considered. The reference weight in final notification set at 1,170 kg, while in the draft, it was proposed to be set at 1,229 kg. Super credits have also been tweaked in the final notification. Super credits for BEVs were proposed at 4x. However, in the final notification, the super credits are set at 3x. The super credits for other categories are largely in line with the proposal.
Under the notified rules, the target fleet-average fuel consumption will drop from 3.996 litres per 100 km in FY 2027-28 to 3.3273 litres per 100 km by FY 2031-32. Targets have been defined individually for each financial year across the compliance cycle to ensure automakers progressively lower tailpipe carbon dioxide emissions. In order to facilitate compliance while enforcing accountability, the government will permit manufacturers to trade carbon credits bilaterally or purchase shortfall offsets directly from the BEE.
The regulatory buyout price will see a steep escalation over the five-year block, incentivizing carmakers to invest in low-emission platforms rather than relying on compliance purchases. In FY 2027-28, the fleet fuel target is set at 3.9960 L/100 km with a BEE buyout cost of Rs 2,500 per g COâ‚‚/km, tightening to a stricter target of 3.3273 L/100 km alongside an increased buyout cost of Rs 4,500 per g COâ‚‚/km by FY 2031-32.
To encourage electrification and alternate fuels, the final notification retains volume-derogation "super credits". When computing fleet-wide averages, clean powertrain sales receive favorable multipliers:
- Battery Electric Vehicles (BEVs) & Range-Extended EVs (REEVs): 3.0 super credit
- Plug-in Hybrids (PHEVs) & Strong Hybrid Flex-Fuel Vehicles: 2.5 super credit
- Strong Hybrids: 1.6 super credit
- Flex-Fuel Ethanol Vehicles: 1.1 super credit
Industry Impact: Hybrid Strategy Pays Off for Market Leaders
The draft rules released earlier had removed legacy weight-based concessions for entry-level small cars, and the final notification has preserved that exclusion without reintroducing small-car carve-outs. The changes under the new draft are particularly positive for M&M and Hyundai. The super credits cut from 2.0x to 1.6x for hybrids is negative for Maruti, Toyota, Honda. The formal retention of strong hybrid incentives provides immediate regulatory clarity and strategic upside for automakers heavily invested in hybrid platforms, most notably Maruti Suzuki India Ltd (and partner Toyota Kirloskar Motor).
Models such as the Grand Vitara and Invicto, alongside upcoming mid-range hybrid nameplates, gain significant compliance value by generating 1.6x volume credits that offset larger internal combustion engine (ICE) and SUV offerings. With the draft provisions already known to the street for several months, market analysts anticipate that auto equities will primarily reflect the closure of regulatory overhang-solidifying production roadmaps for FY28 and beyond.
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