How NVES will change the new car market 

The New Vehicle Efficiency Standard (NVES) took effect on January 1, 2025, however the tracking of emissions for penalties (and credits) didn’t start until July 1. However, 2026 is when manufacturers will really start to feel the squeeze, with any passenger vehicle emitting more than 117 grams of CO2 per kilometre and any light commercial vehicle emitting more than 180g/km attracting fines. As this article illustrates, this includes eight of the top 10 best-selling cars in 2025 and the numbers get very scary, very quickly, so what does this mean for the state of the Australian new car market? 

The New Vehicle Efficiency Standard introduced in 2025 has the potential to reshape the new car market in Australia. This, of course, is its intention; the government hoping that by applying financial penalties to higher-emitting vehicles, lower-emitting vehicles will become more attractive for manufacturers to offer and consumers to buy.

To illustrate the scale of the challenge facing car makers, carsales has taken the top 10 selling vehicles in 2025 and projected the penalties that will apply for each year out to 2029, which is currently the final year for which emissions targets are set.

As a reminder, the passenger vehicle targets are 117g/km (2026), 92g/km (2027), 68g/km (2028) and 58g/km (2029), while for light commercial vehicles – including ladder-frame SUVs – the targets are 180g/km, 150g/km, 122g/km and 110g/km for the same years respectively.

Every vehicle sold that exceeds those targets will attract a penalty of essentially $50 per gram per vehicle (though the formula is a little more complicated than that as we’ll get to).

However, every vehicle sold below these thresholds will count as a ‘credit’, basically offsetting a higher-emitting vehicle.

Manufacturers that sell a lot of low-emitting vehicles (e.g. Tesla, Polestar, BYD) will have the opportunity to sell their credits to other manufacturers to allow them to avoid penalties. Manufacturers can also carry over credits from previous years if required.

Due to the assumptions involved, the numbers below are not in any way intended to be indicative of the penalties that will actually be paid; over the next four years manufacturers will alter their model mixes and no doubt there will also be some clever ‘accounting’ taking place in the interim.

They do, however, effectively illustrate the size of the financial problem for some manufacturers. For example, if Ford continues selling the same number of Rangers and Everests it did in 2025, it’s looking at an NVES bill of well over $1 billion by the end of 2029.

To come up with these numbers, it was assumed the 2025 volumes would continue each year (rounded to the nearest 5000) and the emission calculations were based on the best-selling variant.

With the likes of the Ford Ranger and Everest or Toyota HiLux, the majority of which are sold with the one powertrain, that results in a fairly accurate number. In the case of the Hyundai Kona, which is offered in ICE, hybrid and EV guises, it’s less so, but is sufficient to illustrate the point.

Now we can add some context to the figures. As mentioned previously, if Ford wants to continue selling 55,000 Rangers and 25,000 Everests each year and they’re all powered by the 3.0-litre turbo-diesel V6 (as they now almost exclusively are), it’s looking at an NVES bill of $1,185,992,000 for those sales over the four years.

Another interesting point is that a Toyota RAV4 Cruiser Hybrid (the most popular variant, though most variants have the same powertrain) attracts credits in 2026 but penalties thereafter.

This is a car with a claimed combined fuel consumption of 4.8L/100km, illustrating just how tough the new targets are. That 58g/km passenger car target equates to a combined fuel consumption of 2.5L/100km.

The best-selling Kona variant is the base 2.0-litre petrol, so that was used for the calculations, but if Hyundai can convert those sales into hybrids, it will save itself $263,890,000 by the end of 2029 – not exactly pocket change.

Finally, the figures show what an advantage the EV specialists like Tesla have. Based on 2025 Model Y volumes, it will have almost eight million credits available that it could sell to other manufacturers to avoid penalties.

You’ll find the exact calculations required for NVES at the bottom of this article.

Looking at those numbers, the obvious conclusion is that sales of utes and SUVs will fall off a cliff as manufacturers scramble to avoid paying penalties, but the answer isn’t quite that simple.

Cars will undoubtedly get more expensive, but if we take the Ford example and its theoretical $1.19b bill, passing that on to the consumer over the 320,000 Rangers and Everests it would sell to accrue that penalty only raises the price by $3706.23 per vehicle – not ideal, but not necessarily a deal breaker.

For the likes of Toyota, which can not only spread the penalties over almost 250,000 vehicles per annum but will also accrue plenty of credits in 2026 for future use courtesy of its hybrid-heavy range, the added cost to the consumer will be far less.

Even a Lamborghini Revuelto with its 747kW 6.5-litre V12 (plug-in hybrid, admittedly) powertrain will only attract an extra $10,339 per car in 2029, though it’s worth remembering that for higher-end vehicles, every dollar added to the RRP will be multiplied courtesy of Luxury Car Tax and on-road costs such as stamp duty.

This all begs the question as to whether NVES will be sufficient to change buyer behaviour en masse?

In certain price-sensitive segments it undoubtedly will – adding $3000 to a $70,000 Ford Ranger is different to adding $2000 to a $35,000 Hyundai Kona – and it will certainly put pressure on manufacturers that don’t have vehicles in their ranges to provide any offset.

What’s certain is that many of the new Chinese brands that have recently entered the Australian market will benefit, the likes of BYD, GWM and Chery (and their associated offshoots) who are already securing impressive market share with affordable PHEVs and EVs – NVES will only accelerate their growth and increase their advantage.

Making life even more difficult is the fact that the product rollout for this period is likely to have been locked in prior to NVES even being a thing. It may be that it’s not necessarily the largest manufacturers that survive, but those who can adapt their plans the quickest.

There are three key numbers required to calculate a manufacturer’s NVES penalties: the emissions target, interim emissions value and final emissions value. 

Calculating the emissions target is the most complex. It’s the headline limit (the numbers beyond which penalties are accrued) plus the mass adjustment factor (0.0663 for passenger cars and 0.0324 for light commercials) multiplied by the designated mass on running order (kerb weight) minus the reference mass in running order (1723kg passenger cars; 2155kg light commercials). 

Clear as mud? Let’s use the new Toyota HiLux Rogue as an example, which weighs 2342kg. Given the headline limit for light commercials in 2026 is 180g/km, our emissions target is 180 + 0.0324 x (2342-2155) = 186g/km. 

The interim emissions value is then the vehicle’s stated emissions (201g/km in the case of the Rogue) minus the emissions target multiplied by the volume sold. If we say Toyota wants to sell 50,000 HiLux Rogues, this is then 201 - 186 x 50,000 = 750,000. 

The final emissions value is the interim emissions value minus any credits the manufacturer has. Let’s say Toyota has 350,000 credits from selling hybrids in 2026, then its final emissions value will be 750,000 - 350,000 = 400,000. 

It’s this number that is subject to the penalties, which at $50 per vehicle would be $20,000,000.

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