Car industry needs to rapidly boost EV uptake, despite meeting first fuel efficiency targets

Australia’s car industry has met the first year of targets under the country’s new vehicle efficiency rules, but industry leaders say significantly tougher emissions limits in coming years will require a much stronger uptake of electric vehicles.

Results released in February by the federal government’s NVES regulator show that the combined industry met the 2025 target under the new New Vehicle Efficiency Standard (NVES), Australia’s first nationwide fuel efficiency scheme.

The data includes interim emissions values for individual manufacturers and details on the credits issued to companies that complied with the scheme’s first-year limits.

The Electric Vehicle Council hailed the efforts of its two main members, Tesla and Polestar, who broke away from the industry’s main car body, the Federal Chamber of Automotive Industries (FCAI), over the issue.

“Tesla and Polestar put a stake in the ground early, arguing that Australia needed a modern efficiency standard to unlock supply and investment,” CEO Julie Delvecchio said. “Their leadership helped shift the national conversation from fear to facts.”

The EVC said the report highlighted how the NVES, working in unison with the Electric Car Discount (EV FBT exemption), is improving access and affordability for Australian households and fleets.

“With the NVES pulling cleaner cars into Australia and the Electric Car Discount helping more working Australians access them, this policy alignment is delivering real outcomes. It is smart policy translating into real savings for households,” Delvecchio said.

“More supply means more competition. More competition means better choice and downward pressure on running costs. Electric vehicles are already around $3,000 a year cheaper to drive, and this framework is helping to bring upfront prices down compared to petrol and diesel cars.”

It is calling for tougher targets to be imposed in the future, rather than weaker ones.

The FCAI also said the results show that most car makers had responded quickly to the new rules, increasing the supply of low- and zero-emission vehicles to the Australian market.

“An increase in the range of zero and low emission vehicles available in the Australian market have supported the achievement of the first-year targets,” FCAI chief executive Tony Weber said in a statement.

The industry body said there are now more than 100 electric vehicle models available in Australia, reflecting a rapid expansion of EV offerings in recent years.

However, Weber said stronger demand for electric vehicles would be needed to meet the increasingly strict emissions targets that apply through to 2029.

“Despite this increase in supply, EVs represented just 8.3 per cent of new vehicle sales in 2025, which was only a 1.1 percentage point increase on 2023.”

“Sustaining compliance as targets tighten will require materially stronger uptake of EVs than current market trends indicate,” Weber said.

Under the NVES framework, emissions limits become progressively stricter each year.

For passenger vehicles, the 2026 target is 17 per cent lower than the 2025 threshold, while the target for light commercial vehicles – including utes and vans – is 14 per cent lower.

By 2029, the standard becomes significantly more stringent, requiring emissions reductions of 59 per cent for passenger vehicles and 48 per cent for light commercial vehicles compared with the initial 2025 levels.

The scheme operates through a credit system, where manufacturers earn credits for selling low- or zero-emissions vehicles that outperform the emissions target. Those credits can be used to offset higher-emitting vehicles or traded with other manufacturers.

If manufacturers fail to comply with the standard, they may face financial penalties. The FCAI said that as targets tighten, manufacturers will need to continue expanding their EV line-ups and sales volumes to avoid penalties under the scheme.

The industry body also warned that any additional compliance costs could ultimately be passed on to consumers.

“The rate of improvement required to avoid NVES penalties presents a substantial challenge, and any additional costs generated by the NVES will likely be passed on to new car buyers,” Weber said.

The FCAI is calling for additional government policies aimed at boosting EV demand in Australia, arguing that stronger consumer uptake will be necessary for the industry to meet the tightening targets.

“FCAI is keen to see the government consider policy settings that support consumer demand for EVs and low-emission vehicles which will assist the achievement of the NVES,” Weber said.

Australia introduced the NVES in 2024, making it one of the last developed countries to adopt mandatory fuel efficiency rules for new vehicles.

Similar standards have existed for years in major markets including Europe, the United States and China, where they have helped accelerate the shift toward electric vehicles and more efficient petrol and hybrid models.

In Australia, the new rules are expected to gradually reshape the vehicle market by encouraging manufacturers to prioritise the supply of lower-emissions models, particularly electric vehicles.

Whether the country can reach the EV adoption levels needed to meet the later NVES targets remains uncertain, particularly in a market still dominated by large SUVs and diesel utes, and a lingering thirst for hybrid vehicles. However the first-year results do suggest that the industry has, at least for now, managed to clear the opening hurdle.