Impact of Australia's Novel Vehicle Efficiency Standard on the Emerging Automotive Market

The Australian Government has enshrined the Federal Government's New Vehicle Efficiency Standard (NVES) in law, marking a significant step towards reducing carbon emissions and promoting the adoption of more efficient vehicles.

Starting from January 1, 2025, the NVES will impose annual emissions limits for new vehicle fleets. Passenger cars will be expected to emit no more than 58g CO2/km, while light commercial vehicles (which include dual-cab utes) will be limited to 110g CO2/km.

Brands like Ford, Toyota, and several other importers will need to nearly halve the fuel consumption of vehicles like the Ford Ranger and Toyota RAV4 by 2029 to meet these targets. Brands such as Isuzu and GMSV have difficult decisions ahead in meeting the new emissions standards.

The financial penalties for breaching the caps are significant. Each excess gram times the amount of models sold could result in a $100 fine. Without a concession, importers may pass on these sizeable penalties to their customers in the form of price rises, affecting brands like Ferrari, Bentley, and Lamborghini.

However, the biggest winners from the NVES will be manufacturers of highly efficient electric vehicles. As sales of less efficient vehicles decrease and subsidies favor efficient electric cars, this shift will accelerate the transition to electric vehicles. Europe is expected to see over 90% new battery-electric vehicle sales by 2035, benefiting companies strong in electric mobility such as Tesla and Volkswagen.

Hyundai and Volkswagen are among the brands with EV-rich product pipelines that stand to benefit from the new emissions standards. Tesla and BYD are expected to receive significant funds from the government for complying with the mandated CO2/km limits.

If you have wanted a V8 Mustang or a manual Toyota GR86, Hyundai i30 N, BMW M2, or other internal combustion sports cars, it is recommended to purchase them soon, as they may become more expensive or less available due to the new emissions standards.

Toyota has announced that plug-in hybrids will be coming to Australia between now and 2030. The nation's best-selling vehicle in 2023, the Ford Ranger, emits 189g of CO2/km in its most efficient form. In contrast, the number one selling passenger vehicle in Australia last year, the Toyota RAV4, in its most economical, hybrid two-wheel-drive iteration, produces about 107g/km.

Lobbying continues for a low-volume concession that would exempt importers who sell fewer than 2500 vehicles. In the United States, a similar arrangement resulted in Tesla adding $1.79b (A$2.7b) to its bottom line in 2023 alone.

The new emissions standards will likely make less efficient vehicles more expensive and more efficient vehicles less expensive, with electric vehicles being the most efficient. The government's new emissions rules aim to discourage the purchasing of heavy, fuel-consuming vehicles like diesel dual-cab utes and large SUVs.

The NVES is set to reshape the Australian automotive landscape, pushing manufacturers towards more efficient and environmentally friendly vehicles, and encouraging consumers to consider electric and hybrid options.