Hero MotoCorp Flags CAFE Norms, Rare Earth Supply and Chip Shortages as Key Risks

Hero MotoCorp has identified proposed Corporate Average Fuel Efficiency (CAFE) norms, disruptions in rare earth supplies, semiconductor shortages and the transition to electric mobility as some of the biggest emerging risks facing India's two-wheeler industry, according to its FY26 annual report, as reported by ETAuto.

The country's largest two-wheeler manufacturer said it is working with policymakers through the Society of Indian Automobile Manufacturers (SIAM) to advocate realistic and technically achievable CAFE targets for motorcycles and scooters. India is set to become the first country to bring two-wheelers under a fuel-efficiency compliance framework.

The company cautioned that a rapid implementation of the proposed norms could leave manufacturers with limited time to redesign internal combustion engine (ICE) models, increasing compliance costs and exposing them to potential penalties or product recalls. It added that an accelerated rollout would also require significant changes across the automotive supply chain.

To prepare for the proposed regulations, Hero MotoCorp said it is investing in lightweight materials, improving ICE engine efficiency, expanding its electric vehicle portfolio and engaging with policymakers and industry bodies on the implementation roadmap.

The company also highlighted semiconductor availability as an ongoing concern as modern two-wheelers increasingly rely on electronic control units, connectivity features and advanced electronics.

According to the annual report, the industry recently faced a severe shortage of foundation chips, including MOSFETs, transistors and logic gates, following a geopolitical standoff involving semiconductor manufacturer Nexperia.

Hero MotoCorp also pointed to supply-chain vulnerabilities arising from restrictions on heavy rare earth exports. It said China's export licensing measures disrupted global availability during FY26, affecting electric vehicle manufacturers that rely on rare earth magnets for traction motors.

The company noted that several manufacturers were forced to reduce production or temporarily suspend operations because of shortages. Hero MotoCorp, however, said it avoided major disruptions by adopting multi-sourcing strategies, diversifying magnet procurement through alternative global supply routes and developing non-restricted magnet grades for its electric vehicle motors.

Beyond supply-chain risks, the company said a series of upcoming regulatory changes could increase compliance requirements for manufacturers. These include End-of-Life Vehicle (ELV) regulations under AIS-129 and the Ministry of Road Transport and Highways' draft notification proposing mandatory Anti-lock Braking Systems (ABS) for all L2 category two-wheelers.

Hero MotoCorp also identified cybersecurity as a growing business risk as connected vehicles and digital platforms become more widespread. 

The company further identified labour availability, energy supply disruptions, industrial fuel logistics, climate change and geopolitical conflicts as additional challenges that could affect manufacturing operations and supply chains.

To address these risks, Hero MotoCorp said it is pursuing better localisation, expanding alternative sourcing networks, strengthening climate resilience planning and investing in workforce engagement initiatives.