Mahindra & Mahindra has raised concerns regarding the proposed Corporate Average Fuel Efficiency (CAFE III) norms, stating that the draft framework could expose the company to annual penalties of up to Rs. 50 billion (US$ 532.3 million).

According to a local daily, in a letter addressed to P K Mishra, Principal Secretary to the Prime Minister, Group CEO and Managing Director Anish Shah stated that the proposed emission targets appear "unrealistic", given the current stage of electric vehicle (EV) adoption in India.

Based on the company's internal estimates, compliance would require a significant increase in EV volumes - nearly threefold within two years and approximately 6.5 times over six years. Shah noted that such growth could be constrained by limited charging infrastructure, price disparities between EVs and internal combustion engine vehicles, and the early stage of the EV ecosystem.

He also referred to global uncertainties, including supply chain disruptions and geopolitical tensions, as additional factors. "The risk of huge penalties is therefore very real for us," Shah said, adding that achieving the targets would require an "unrealistically large share of EVs" in the company's portfolio.

Under the current CAFE-II regime, the automaker faced a potential penalty of Rs. 17.88 billion, accounting for nearly 20% of the total Rs. 87.71 billion imposed on the industry between FY23 and FY25. However, penalties were incurred only in FY23, with further liabilities avoided subsequently through an expansion of the EV portfolio and improvements in fuel efficiency.

Mahindra's concerns

The company also identified what it described as a "policy imbalance" in the draft norms. It stated that manufacturers with limited investments in battery electric vehicles could meet targets through hybrid models, potentially affecting industry incentives.

"We humbly submit that CAFE III guidelines are a significant setback for EV. They will encourage the industry to manufacture hybrids, which will impact investments in the charging network and could slow EV adoption," the company stated, referring to its Rs. 120 billion investment in battery electric vehicle technology.

Mahindra has sought revisions in the treatment of EVs under the framework, stating that tailpipe emissions for EVs should be classified as zero. It described the draft approach - which assigns EVs a calculated emission value of 32.34 g/km - as "counter-intuitive".

The company has also called for higher "super credits" for EVs to reflect their environmental characteristics and support early investments. Under the draft CAFE III norms, EVs currently carry a super credit of 3.0, meaning each EV sale is counted as three vehicles in fleet calculations.

According to the company, the current parameters make compliance more challenging for strategies focused solely on EVs compared to hybrids, which continue to receive partial regulatory benefits.