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News: As per media sources, domestic passenger vehicle manufacturers are likely to be fined for failing to meet Corporate Average Fuel Economy (CAFÉ-2) norms with industry wide penalty expected in the range of Rs 3,600-5,800 crore. Penalty to be imposed on entire fleet of PV manufacturer at the rate of Rs 25,000/vehicle if carbon dioxide emission exceeds up to 4.7g/km above the prescribed norm (113g/km-117.7g/km) and Rs 50,000/vehicle if it exceeded 4.7 g/km (i.e. >117.7g/km
Views: CAFÉ norms were first introduced in 2017 wherein every car marker was directed to lower carbon dioxide emission from their vehicle fleet and make vehicles, which are more fuel efficient in nature. The technical parameter for the same specified average carbon dioxide emission to be within ~130g/kmin first phase, which shall be reduced to 113g/km in phase two starting April 2022. This is different from the BS-6 phase 2, which is to be implemented from April 2023 requiring real time emission control and monitoring (OBD-2). In our view, meeting CAFE-2 norms should not be a challenge for Maruti Suzuki (given the CNG penetration at ~15% of portfolio) and Tata Motors (Electric penetration at ~8% of portfolio) but could be a challenge for M&M given its low reliance on alternate fuels at the moment. We await affirmative comments from OEMs in this domain before gauging any financial impact of the same
Impact: Neutral