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Friday, January 27, 2023

Explained: Corporate Average Fuel Efficiency (CAFE) and how it’s calculated

While the BS6 standards limit emissions of pollutants such as hydrocarbons, sulfur and oxides of nitrogen, the CAFE standards deal with total fuel consumption, specifically the amount of fuel consumed.

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CAFE stands for Corporate Average Fuel Efficiency/Economy, so the emissions and economy of individual models are not considered, but rather the weighted average of the emissions and economy of the entire fleet sold in the country. This means that as a manufacturer I may very well sell heavy, highly polluting, fuel efficient cars, but then I will have to compensate by selling large volumes of much more efficient and lighter cars.

While the BS6 standards limit emissions of pollutants such as hydrocarbons, sulfur and oxides of nitrogen, the CAFE standards deal with total fuel consumption, specifically the amount of fuel consumed. Fuel consumption is usually proportional to fuel efficiency and the weight of the car.

So how is each manufacturer’s CAFE target calculated? There are 3 steps.

Step 1: Derive the corporate average curb weight for the manufacturer. This is:

{(Number of cars sold in model 1 * Curb weight of model 1) + (Number of cars sold in model 2 * Curb weight of model 2)+….}

Divided by:

(total number of cars sold in all models)

Keep in mind that the number of cars sold in each model makes a big difference. If the X1 is BMW’s best-selling model, it will weigh heavily in the average curb weight calculation. The lighter it is, the more it will reduce the average curb weight and will be an advantage for the manufacturer in complying with the CAFE standard. Now the important point is that while BMW India alone cannot dictate the weight of each X1 variant/powertrain, it can influence which variant is selected for sales in India. By going for the 18i and 18d, BMW India is able to import the lightest available variant of the X1 due to the smaller and lighter engines and thus helps achieve a lower weighted average curb weight.

Step 2: Scale the industry average target to the manufacturer weighted average curb weight to get the manufacturer specific CO2 target.

The regulator then sets an industry-wide average curb weight by combining all manufacturers. This is then reduced to set the CAFE 1 and CAFE 2 targets. The industry average curb weight of 1145 KG for India has been obtained for CAFE Phase 2 and a CO2 emission target has been set for this curb weight. of 113 g/km. Manufacturers then scale linearly based on their particular fleet’s weighted average curb weight, calculated in Step 1 above. Therefore, a manufacturer that builds a fleet of cars with an average curb weight of 1145 KG must ensure that the weighted average emission of its entire fleet does not exceed 113 gm/KM. If they sell a few gas guzzlers at one end of the spectrum, they’ll have to compensate by selling a lot of smaller and lighter cars at the other end of the spectrum to make up for that and bring the average back to 113g/km.

Manufacturer’s CAFE target = (industry-wide target * manufacturer’s weighted average curb weight from step 1 above)

Divided by:

(Industry average curb weight)

Step 3: Calculate the actual CAFE achieved by the manufacturer each year based on the weighted average of the cars sold in its fleet and the CO2 emissions of each model.

{(Number of variant 1 cars sold * CO2 emissions of variant 1) + (Number of variant 2 cars sold * CO2 emissions of variant 2) + …..}

Divided by:

Total number of all cars sold.

The actual CAFE achieved in Step 3 has to be less than or equal to the target derived in Step 2 to achieve compliance with the CAFE 2 standards.

BMW was given an average curb weight of 1712KG based on its fleet composition and the relative sales of each model in step 1. Therefore, by scaling the CO2 target to 113g/KM linearly to its curb weight number, received a 140g/KM CO2 target. Now, they will have to ensure that their real world sales of each model/variant across the spectrum results in an overall emission as in step 3, below 140g/km! Plus, they’ll have to make sure they make it every year!

Now this is quite a significant stretch from its current average, which is around 160g/km. So what can they do to achieve the goal on an ongoing basis? Emissions per model/variant are what they are: they are determined by the overall design and engineering of the cars. There is no control that BMW India will have over the emissions for specific variants. So some of the things BMW can do to influence your CAFE achieved:

Reduce the weight of fast-selling models by opting for lighter variants with smaller engines. This is why the 118i and 118d variants of the X1 were chosen. Selling these variants in good numbers will allow BMW to gain enough space to sell niche-market high-performance models like the M3 and M4 that will drag significantly higher average corporate emissions for each additional car sold.

Increase the weight of mid-range models that sell in reasonable numbers so that the average curb weight goes up but the CO2 target goes up a bit too. They cannot go overboard on this, as a heavier car can generate more emissions and this will pigeonhole the numerator. The unique option of the 3 Series LWB is a direct result of the great opportunity that exists in this segment. The LWB weighs more than the standard 3-series by a good margin, but it doesn’t increase emissions by a corresponding amount due to the way these engines are tuned. The 330LD LCI emits just 135g/km of CO2. The pre-LCI regular wheelbase 320D put out 127 g/km. The advantage of the increased weight will likely outweigh the disadvantage of increased emissions.

Reduce the number of cars that do not provide enough volumes and income; They don’t add significantly to average curb weight, but they drag disproportionately higher emissions.

Play a pricing game: price high-end marquee variants that will sell regardless of price (think 7-series) and subsidize baby darlings like X1 which will lower the number of CAFEs in generally selling them in higher volumes.

Last but not least increase electric and hybrid vehicles on the line as they will significantly reduce overall CO2 emissions – this is the only thing the government is trying to push car manufacturers to do more but all of the above bullets are unintended consequences. the way CAFE standards are defined and measured.

Image Source: Autocar India

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