The proposed Corporate Average Fuel Efficiency (CAFE-3) rules aim to reduce vehicle emissions. But the industry says that these rules may lead to a huge increase in the prices of entry-level (cheap) cars.
Could the price of cheap cars rise by 17%?
According to media reports, industry sources say that if CAFE-3 is implemented, the price of entry-level cars may increase by about 17 percent.
This estimate is much higher than the official figures of the Bureau of Energy Efficiency (BEE).
Where BEE has estimated about Rs 15,000 per vehicle for technical upgrade. The industry believes that the actual cost can reach Rs 25,000 (about 7 percent).
If flex-fuel or carbon-neutral options are adopted, this cost can go up to Rs 65,000 (about 17 percent).
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Car Pollution – Photo : Adobe Stock
Will the emission targets not be met even after this much expenditure?
The surprising thing is that even after spending so much, companies will not be able to achieve the set emission targets.
For example:
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Emissions for a 740 kg entry-level car will be around 83.43 g CO₂/km
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While the FY32 target is 62.04 g CO₂/km
That means there will be a difference of about 21.39 g CO₂/km.
Even adopting the flex-fuel option, there will be a difference of about 7.49 g CO₂/km.
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Auto Sales – Photo : Adobe Stock
Will companies be hit twice?
The industry says that companies may have to bear two types of burdens simultaneously:
This will further increase costs, which will directly impact customers.
Why are costs increasing so much?
The real expense is not just limited to parts. These include:
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engineering changes
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supplier upgrade
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Testing and Validation
The industry says that these expenses have not been fully included in the BEE estimates.
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Car Pollution – Photo : Adobe Stock
Could the small car market be coming to an end?
Small cars will be the most affected, as this segment is very price sensitive and is the entry point for first-time car buyers.
Experts believe:
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Companies can focus more on SUVs instead of small cars
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This trend is already visible in India
Sales of small cars have declined by about 62 percent between FY19 and FY25.
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Auto Sales – Photo : Adobe Stock
Will the impact be less on larger vehicles?
Yes, the impact on SUVs and larger cars will be relatively less because:
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Their base price is higher than before
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Many technical features are already present in them
Will the benefit of GST exemption end?
The industry says the cost increase due to CAFE-3 could almost negate the benefits of GST exemption given on small cars.
This means that the relief that was received earlier may now become ineffective.