Small Cars Likely to Get Costlier; Prices May Rise Up to 10% Due to New CAFE-3 Draft

New Delhi: Owners of small cars may soon feel the pinch as auto manufacturers prepare for potential price hikes of up to 10%. The increase is linked to the government’s consideration of the new CAFE-3 draft, aimed at improving fuel efficiency and reducing vehicle emissions.

Impact on Small Car Makers
The new draft, currently under review by multiple ministries, is the third version of CAFE-3 in the past two years. Experts warn that if carmakers reduce production of small cars due to stricter regulations, it could affect consumers planning to upgrade from two-wheelers to cars.

Automakers will either have to incorporate expensive fuel-saving technologies to meet the new standards or face heavy penalties, which will inevitably raise the cost of small cars.

What is CAFE-3?
CAFE, or Corporate Average Fuel Efficiency, sets benchmarks for the average mileage and carbon emissions of vehicles sold by manufacturers. Under the proposed CAFE-3 draft, the Bureau of Energy Efficiency (BEE) has suggested removing certain exemptions or relief measures for small car makers, including range-extended electric vehicles (REEVs). REEVs will receive a Volume Derogation Factor (VDF) of 3, a scoring system used to encourage the sale of low-emission vehicles such as EVs and hybrids.

Super Credits and Industry Response
According to the proposed guidelines submitted to the Prime Minister’s Office (PMO), sellers of EVs or range-extended hybrid EVs will receive three ‘super credits’, while sellers of petrol and diesel vehicles will earn only one point. Industry representatives have indicated that BEE has maintained this approach in its recommendations.

With these changes, small car manufacturers will face higher costs, which are expected to be passed on to consumers, potentially making cars 10% more expensive in the near future.