Nomura examines CAFE III impact on EV biz
New Delhi: The government's latest draft notification on Corporate Average Fuel Efficiency III (CAFE III) 2027 strikes a balance between the interests of automakers while
New Delhi: The government's latest draft notification on Corporate Average Fuel Efficiency III (CAFE III) 2027 strikes a balance between the interests of automakers while signalling a clear policy shift towards faster electrification of the passenger vehicle market, according to a report by Nomura.The report said the revised CAFE III framework provides greater flexibility to original equipment manufacturers (OEMs) by assessing compliance over three-year blocks instead of every year.It stated, "In our view, the latest CAFE notification balances the interests of all stakeholders while making it clear that the policy direction is shifting towards faster electrification".Corporate Average Fuel Efficiency (CAFE) refers to government regulations that require automakers to meet a specific average level of fuel economy or carbon dioxide (CO₂) emissions across their entire fleet of vehicles sold in a year.Also read | India gets 1st hydrogen train, but bigger story lies elsewhereUnder the draft notification published by the Ministry of Power on Thursday, compliance will be evaluated over FY28-30 and FY30-32, giving manufacturers additional time to phase in electric vehicle (EV) launches.Ministry of Power stated that "Corporate Average Fuel Economy 2027 Norms (CAFE-III) are proposed to be applicable to M1 category passenger vehicles manufactured or imported for sale in India during 2027-28 to 2031-32".According to Nomura, the latest notification makes it clear that the government's policy direction is increasingly focused on accelerating EV adoption while accommodating industry concerns.The brokerage said it had recently highlighted that EV adoption in India is approaching an inflection point, supported by strong underlying demand, expanding model availability, a more supportive policy framework and the recent increase in fuel prices.Nomura also expects passenger vehicle EV penetration in India to rise to 8.8 per cent by FY28 and further to 12.7 per cent by FY30.Also read | Rising fuel costs accelerate EV shift; MG bets bigger on plug-in hybridsThe July 2026 draft has introduced several key changes compared with the September 2025 draft.
The super-credit for strong hybrid vehicles has been reduced from 2. 0x to 1. 6x, while the explicit 3g CO₂/km concession available for small cars has been removed.At the same time, the government has introduced 12 new derogation technologies, each offering a benefit of 1g CO₂/km, with the total benefit capped at 9g CO₂/km (0.3795 l/100km).According to Nomura, these technologies have the potential to reduce the EV mix requirement by 2-4 per cent across OEMs.The report also pointed out that manufacturers failing to meet the prescribed norms
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