Mahindra & Mahindra has said the proposed Corporate Average Fuel Efficiency (CAFE 3) norms could expose the company to annual penalties of up to Rs 5,000 crore, flagging concerns over the pace of transition required under the draft rules.
In a letter to PK Mishra, principal secretary to the Prime Minister, Group CEO and Managing Director Anish Shah has said the emission targets appear “unrealistic”, with internal estimates indicating a steep scale-up in electric vehicle (EV) sales over a short period.
According to the company, compliance would require it to triple EV volumes within two years and increase them 6.5 times over six years. Shah has said such a trajectory is difficult given the early stage of the EV market, gaps in charging infrastructure and the price difference between EVs and internal combustion engine vehicles.
Global uncertainties
He has also pointed to global uncertainties, including supply chain disruptions and geopolitical tensions, as additional constraints. “The risk of huge penalties is therefore very real for us,” Shah has said, adding that achieving the targets would need an “unrealistically large share of EVs” in the company’s portfolio. This, he has said, could translate into annual penalties ranging between Rs 2,000 crore and Rs 5,000 crore.
When contacted, an M&M spokesperson declined to comment on the matter.
The company’s exposure to penalties under the existing regime has been significant. Under CAFE 2, M&M faced a potential penalty of Rs 1,788 crore, accounting for nearly 20% of the total Rs 8,771 crore imposed on automobile manufacturers between FY23 and FY25. However, the company was penalised only in FY23, after which it avoided further liabilities by expanding its EV portfolio and introducing more fuel-efficient models.
M&M raises concerns over ‘policy imbalance’
M&M has also raised concerns over what it sees as a policy imbalance in the draft framework. The company has said manufacturers that have not invested substantially in battery electric vehicles may still meet targets through hybrid models, which it believes could alter industry incentives.
“We humbly submit that CAFE 3 guidelines are a significant setback for EV. They will encourage the industry to manufacture hybrids, which will severely impact investments in the charging network, which could potentially kill adoption of EVs,” the company has said in its communication. It has highlighted its own Rs 12,000-crore investment in battery electric vehicle technology.
The company has sought changes in how EVs are treated under the norms. It has said EV tailpipe emissions should be classified as zero, describing the draft approach of assigning calculated emissions to EVs as “counter-intuitive”.
It has also called for higher “super credits” for EVs to recognise early investments and accelerate adoption. Under the draft CAFE 3 framework, EVs are assigned a tailpipe emission value of 32.34 g/km, while the super credit is set at 3.0, meaning each EV sale is counted as three vehicles in fleet calculations.
M&M has said these parameters do not adequately reflect the benefits of full-electric vehicles and make compliance more difficult relative to hybrids, which continue to receive partial credit under the framework.