Hero sounds first warning on CAFE's emerging risk to two-wheeler firms
New Delhi: Hero MotoCorp Ltd has become the first two-wheeler maker to flag the government's proposed corporate average fuel efficiency (CAFE) norms for motorcycles and
New Delhi: Hero MotoCorp Ltd has become the first two-wheeler maker to flag the government's proposed corporate average fuel efficiency (CAFE) norms for motorcycles and scooters as an “emerging risk” to business, warning that tougher fuel-efficiency rules could raise costs in India's highly price-sensitive market. The disclosure in the company's FY26 annual report comes as the government prepares to roll out fleet-wide fuel-efficiency targets for India's two-wheelers, world's largest market for the segment, from April 2028. The country's largest two-wheeler maker said it plans to mitigate the impact of the proposed fuel-efficiency norms by increasing the use of lightweight components, improving vehicle efficiency and expanding its electric vehicle (EV) portfolio. Also Read | Bajaj’s export edge may not justify premium over Hero The warning could indicate a sign of a pushback from the industry on the view that the price hikes resulting out of the emission upgrades could cost the companies growth. Other sector majors Bajaj Auto and TVS Motor have not flagged CAFE norms as a risk yet. “We are engaging with policymakers through the Society of Indian Automobile Manufacturers (SIAM) to advocate for realistic and technically feasible targets specifically for the 2-wheelers segment,” Hero said in its financial year 2026 annual report. The company highlighted that while the introduction of these norms has become necessary in a bid to reduce emissions and promote energy security, there is a material risk to business. “Abrupt implementation, potentially due to geopolitical tensions, could leave 2-wheeler OEMs unprepared, forcing rushed redesigns, incurring higher compliance costs, and risking penalties,” the management noted.
A 2028 deadline could be stiff as the emission targets have still not been set and the companies do not their ask. Product development cycle are typically two-four years long. “In a price-sensitive market, passing these costs to consumers is difficult, threatening profitability and competitiveness. Regulatory non-compliance could lead to financial penalties, product recalls and reputational damage,” the disclosure on emerging risks said. The warning on impact of price sensitivity holds particular importance for Hero MotoCorp, for which around 5.4 million sales of its total 6 million in FY26 came from the entry-level motorcycle range of an engine capacity between 75cc and 125cc. CAFE norms impose a fleet-wise emission target for automakers that are calculated according to average fuel consumption and emission of CO2 from the vehicle. For the four-wheeler passenger vehicle market, these norms have been in place since 2017, with the third iteration set to be introduced next year, but two-wheelers were not subject to any regulatory oversight on pollution so far. None of the car companies have so far identified CAFE norms as a key business risk in their annual reports. Given India's worrying pollution levels, and given that over two-thirds of the country's auto sales come from scooters and motorcycles, the government has started targeting two-wheelers as well. Mint reported on 1 July that the Bureau of Energy Efficiency (BEE) under the Union power ministry is holding discussions with two-wheeler manufacturers and the lobby groups Society of Indian Automobile Manufacturers (Siam) and the Automotive Component Manufacturers of India (Acma) on an accommodative methodology to measure emissions across powertrains.
The BriefWire