Hero MotoCorp's FY26 annual report flags CAFE norms for two-wheelers, due April 2028, as a business risk, warning of cost hikes in India's price-sensitive motorcycle and scooter market.
Hero MotoCorp Ltd is the first two-wheeler manufacturer in India to formally classify the government's proposed Corporate Average Fuel Efficiency (CAFE) norms for motorcycles and scooters as an 'emerging risk', disclosing the concern in its financial year 2026 annual report ahead of a planned April 2028 rollout.
CAFE norms are fleet-wide fuel-efficiency targets imposed on automakers, calculated from the average fuel consumption and CO2 emissions across all models a company sells in a given year. For India's four-wheeler passenger vehicle segment, these norms have been in place since 2017 and are now entering their third iteration. Two-wheelers have, until now, faced no equivalent regulatory oversight on emissions. That is about to change: the Bureau of Energy Efficiency (BEE), under the Union power ministry, is currently in discussions with two-wheeler manufacturers, the Society of Indian Automobile Manufacturers (SIAM), and the Automotive Component Manufacturers of India (ACMA) on how to measure emissions across different powertrain types, as reported by Mint on 1 July 2026.
India is the world's largest two-wheeler market, and over two-thirds of all automobile sales in the country are motorcycles and scooters. The scale of that market is precisely why the government has begun targeting it for emissions regulation.
What changed
Hero MotoCorp's disclosure is notable for two reasons. First, no other two-wheeler maker, including Bajaj Auto and TVS Motor, has yet flagged CAFE norms as a formal business risk in annual filings. Second, the specific shape of Hero's risk is different from its rivals because of its product mix.
In FY26, approximately 5.4 million of Hero's 6 million total sales came from entry-level motorcycles in the 75cc to 125cc engine range. These are buyers who are acutely sensitive to any price increase. If CAFE compliance requires lighter components, engine redesigns, or a faster shift to electric vehicles, those costs will be difficult to pass on to this segment without losing volume.
Hero's management put it plainly in the annual report: 'In a price-sensitive market, passing these costs to consumers is difficult, threatening profitability and competitiveness. Regulatory non-compliance could lead to financial penalties, product recalls and reputational damage.'
The company also pointed to a structural problem with the 2028 timeline. Product development cycles in the two-wheeler industry typically run two to four years. As of now, the actual emission targets have not been set, meaning manufacturers do not yet know what number they are designing toward. Hero said it is working through SIAM to 'advocate for realistic and technically feasible targets specifically for the 2-wheelers segment.'
Ravindra Patki, managing partner at Vector Consulting Group, told Mint that the norms need 'careful sequencing, a fuel-baseline correction for E20, a realistic glide path, so the cost doesn't fall hardest on the rural, cost-conscious buyer who isn't the one driving the urban pollution problem.' That framing matters: the pollution burden is concentrated in cities, but the compliance cost would fall disproportionately on rural and semi-urban buyers of basic commuter bikes.
Hero's EV position adds another layer of pressure. Under CAFE frameworks, electric vehicles carry significantly lower emissions than internal combustion engine (ICE) models and can help a manufacturer's fleet average stay within targets without incurring penalties. Bajaj Auto and TVS Motor have built meaningful EV scooter portfolios: EVs account for 12% of Bajaj's total retail sales and 8% of TVS's, according to data from the Federation of Automobile Dealers Association (FADA). Hero's EV share sits at 3%, though its Vida VX2 electric scooter has been gaining ground. Analysts at Motilal Oswal noted that the Vida VX2's market share grew from 4% in the fourth quarter of FY25 to 11.1% by the fourth quarter of FY26, with the model ranking in the top two EV players in 37 towns.
Still, closing a gap from 3% to the levels needed for comfortable CAFE compliance in under two years, while the targets themselves remain undefined, is a real operational challenge.
What buyers and cooks should do
This section is addressed to the food and clean-label community because the CAFE story has a direct parallel in how ingredient and product regulations work: rules arrive with deadlines, but the actual standards are often finalised late, leaving producers and consumers scrambling.
For anyone buying a two-wheeler in the next 12 to 24 months, a few things are worth tracking. The BEE has not yet published the final emission targets or the methodology for measuring them across petrol, electric, and hybrid powertrains. Until those numbers are public, any manufacturer's compliance cost estimate is speculative. Watch for BEE notifications and SIAM statements rather than brand press releases.
If you are considering an electric two-wheeler, the CAFE framework will likely make EV models more commercially attractive to manufacturers over the next two years, which could translate into more model launches, better after-sales infrastructure, and potentially more competitive pricing as companies try to shift their fleet averages. Hero's Vida VX2, with its removable battery that charges from a standard home socket, addresses one of the most common EV adoption barriers in smaller towns where dedicated charging points are scarce.
For buyers of entry-level commuter bikes in the 100cc to 125cc range, the honest answer is that price increases are possible but not certain, and their size depends on targets that have not been announced. The government has proposed a credit-buying system as a mechanism to soften penalties for non-compliant manufacturers, as Mint reported in June 2026, which could reduce the pressure on base model pricing if the system is designed well.
Hero MotoCorp's new CEO Harshavardhan Chitale, who took over in January 2026, described the company's direction in his first shareholder letter as 'strengthening our core business, accelerating growth in premium and electric mobility, expanding our global footprint.' That is a reasonable strategic response, but it does not resolve the near-term tension between a 2028 regulatory deadline and emission targets that are still being negotiated.