CAFÉ Norms and the Future of India’s Two-Wheeler Industry

As India transitions to a more sustainable future, the two-wheeler (2W) industry must actively contribute to this transformation. While the shift to e-2W is already underway, a stronger policy push is needed to accelerate the shift.

July 15, 2025. By News Bureau

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articles

TERI

IV Rao

Piyush Saxena

The Energy and Resources Institute

National Family Health Survey

Two Wheeler Industry

Sustainable future

TERI projects

Indian Automobile Industry

India, the world’s largest two-wheeler (2W) market by total sales, is witnessing an explosive vehicle ownership. As per the National Family Health Survey (NFHS-5), 2019-21, approximately 50 percent of Indian households own a 2W – be it a motorcycle or scooter. Until 2023, China held the title of the largest 2W market globally; however, in 2024, India surpassed China to become the world’s largest 2W market. With rising incomes and aspirations to own a vehicle, more and more Indians are purchasing 2W to meet their mobility needs. The rise of the gig economy, associated with quick commerce and ride-hailing services, has only deepened this dependence.

In the last 25 years, domestic sales of 2W have increased nearly fourfold. In the year 2024, 2W sales surged by 11 percent year-on-year compared to 2023. It’s no surprise that 2W dominate India’s streets, accounting for an overwhelming 73 percent of the total vehicles and 90 percent of passenger vehicles registered in 2024. A recent study by TERI projects a three-fold rise in the number of on-road 2Ws in India between 2019-20 and 2070-71.

However, this growth brings a challenging reality: Increasing fuel demand and exhaust emissions. According to TERI estimates, 2W accounted for 60 million tonnes of CO_2e(MTCO₂e) in 2019-20. Further, India implemented Bharat Stage (BS-VI) emissions norms in 2020 to control the exhaust emissions from tailpipe at par with the European standard. A whopping 98.5 percent of India’s 28 crore 2Ws run on petrol, consuming close to 60 percent of India’s petrol retail sales. In January 2025, almost 65 percent of 2W sold were in the 100-150 cc engine segment.

Indian customers prioritise low acquisition costs and fuel efficiency (FE), leading OEMs to optimise 2W for better mileage compared to global counterparts. While some models may offer good FE, their environmental footprint is still expected to increase with the expected growth and widespread use of 2Ws. India’s 2W market is home to approximately 19 Original Equipment Manufacturers (OEMs), all of which will play a crucial role in enhancing FE and shaping the environmental impacts of this growing sector. The four leading OEMs – Hero MotoCorp, Honda Motorcycles, TVS and Bajaj Auto collectively captured 80 percent of the 2W sales in the last fiscal year.

While nations like Brazil, Indonesia, and Thailand are already taking decisive action to tackle 2W emissions, India still lacks FE standards for 2W. As the sector grows, India must urgently implement FE norms to reduce fuel consumption and curb CO₂ emissions from the 2W sector. Additionally, more 2W users are opting for electric (e-2W) due to the lower price gap, making them more accessible and appealing.

Dynamics of India’s e-2W Market
At Bharat Mobility Expo 2025, the Indian automobile industry showed unprecedented enthusiasm for electric vehicles (EVs) – a promising sign of change. In 2024, 1.9 crore 2Ws were registered in India, with a surprising 6.1 percent – roughly 10 lacs units – being electric. This marks an impressive six-fold increase in e-2W registrations since 2021. However, while motorcycles (65 percent) still dominate the market, e-2W primarily serve the scooter segment (32 percent). To ensure long-term financial viability for OEMs, it is essential to expand the range of available models, particularly in the e-motorcycle segment. This will offer consumers more choices and drive the growth of e-mobility in this category.

The adoption of e-2W has been driven by the reduced price gap between internal combustion engine (ICE) and electric counterparts, largely due to the incentives under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme and state-level subsidies. As the market continues to grow, new products are expected to lower upfront costs even further.

Interestingly, two OEMs dominated close to 70 percent of e-2W market during 2019-20. Today, four major OEMs (Ola Electric, TVS, Bajaj, and Ather Energy) account for about 85 percent of the e-2W market, signalling a shift in the market dynamics.

Corporate Average Fuel Efficiency (CAFÉ) norms require OEMs to meet a specific average FE across their entire fleet to reduce fuel consumption and emissions.

Further, the variation in the minimum and maximum FE values declared by Indian OEMs has increased, which serves as the opportunity to introduce CAFÉ-like standards to allow manufacturers to offset the emissions of high-polluting models by promoting cleaner, more efficient alternatives in another segment.

Need to Introduce CAFÉ Standard for 2Ws
FE standards for 2W are long overdue. As India transitions to a more sustainable future, the 2W industry must actively contribute to this transformation. While the shift to e-2W is already underway, a stronger policy push is needed to accelerate the shift. CAFÉ standards could provide that much-needed push, enabling OEMs to embrace low-carbon technologies such as e-2W and counterbalance the emissions from ICE counterparts.

The urgent need for robust FE norms is more pressing than ever. Adoption of CAFÉ standards for 2W would be a novel strategy for India towards sustainable transport. Introducing CAFÉ standards for 2W could be a game changer, as it would push OEMs to innovate and adopt more fuel-efficient technologies-most notably e-2Ws. By adopting this strategy, India could position itself as a global leader, demonstrating the benefits of FE standards and setting an example for the world in decarbonising the 2W sector. This approach can further drive EV adoption among existing OEMs by setting aggressive targets for CAFÉ norms.

Driving Sustainability: The Future of India’s 2W
The future of India’s transportation sector is tied to decarbonisation, and the 2W market plays a crucial role in that journey. India’s commitment to achieve net zero by 2070 may seem ambitious, but it is within reach, provided the right steps are taken. Implementing CAFÉ standards for 2W is not just a regulatory measure, it’s an opportunity to reduce emissions, enhance fleet-wide FE and accelerate the transition to more efficient technology.

Strengthening FE norms will not only reduce dependence on fossil fuel but also support indigenous innovation, creating an Atmanirbhar ecosystem. This aligns with the goal of doubling the rate of energy efficiency by 2030, leading India’s strategy to become a global leader in clean technology and sustainable transport.

For OEMs, it’s a win-win situation: the standards will drive innovation while simultaneously cutting down the carbon footprint of the nation’s most popular mode of transport. For consumers, it promises cleaner, more sustainable vehicles that deliver on performance without sacrificing cost-effectiveness.

- IV Rao, Distinguished Fellow, TERI; Piyush Saxena, Research Associate, TERI

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