Automotive sector outlook: Legal trends driving the sector in FY27

Key legal, regulatory and commercial developments shaping the year ahead 13 min read

The automotive sector continues to be a focal point for litigation risk and legislative reform. In this Insight, we explore some of the key issues and developments facing the sector.

Electric vehicle class actions: an emerging risk area

Class action litigation targeting electric vehicle (EV) manufacturers is an emerging area of risk for the automotive sector.

In the US and Canada, several class actions have commenced against EV manufacturers over alleged battery-related defects. These claims concern fire-related risks associated with EV batteries,¹ as well as EV batteries not meeting manufacturer claims about their performance due to rapid battery drainage.² These actions have largely involved alleged breaches of manufacturers' warranties, alleged failures to disclose known defects and alleged breaches of consumer law.

Given its leading position (especially in the North American market), Tesla has understandably been a target of EV-related class actions. Tesla is currently defending Australia's first major consumer EV class action, which was commenced in the Federal Court in 2025.³ The claim alleges that Tesla misled consumers about the functions and capabilities of its autonomous-driving technology (including the 'Tesla Vision' system), phantom braking and vehicle range performance on its Model Y SUVs and Model 3 sedans manufactured from 2021 onwards, and follows on the heels of similar proceedings in the US. This development also highlights the risks posed to Australian OEMs (and corporates more broadly) by entrepreneurial plaintiff firms and litigation funders seeking to 'piggyback' on overseas lawsuits by filing similar proceedings in Australia.

While there were no new automotive class actions filed in Australia in the first half of 2026, the uptick in EV-related claims overseas may be a sign of things to come domestically, particularly as EVs become ever more prevalent in the Australian market.

ASIC charges ahead on enforcement of the automotive finance sector

In our last automotive sector outlook, we reported on the plan of the Australian Securities and Investments Commission (ASIC) to conduct a review of the motor vehicle financing industry. ASIC has now released its final report (REP 832), having reviewed the practices of eight motor vehicle finance lenders across the sector.⁴ This report follows ASIC's preliminary findings announced in November 2025.

The review examined lenders' compliance with key consumer protection frameworks, including the National Consumer Credit Protection Act 2009 (Cth) and the design and distribution obligations (DDO) under the Corporations Act 2001 (Cth), which require lenders and product distributors to take a consumer-centric approach to designing and distributing financial products.

ASIC identified significant variations between lenders in the overall cost of car loans due to differing interest rates and loan origination fees. The report found that where these costs were disproportionate to the value of the vehicle or a consumer's financial circumstances, they could contribute to consumer harm, including: (a) high default rates on loan repayments; (b) difficulty accessing hardship assistance; and (c) substantial residual debt following repossession. Data from four lenders showed that nearly 90% of affected consumers still owed more than half of their original loan balance after the vehicle was repossessed.

The report emphasised that robust governance and oversight of third-party distributors – such as aggregators, brokers, and car dealerships – is essential, given the sector relies heavily on those distributors who have the direct contact with consumers, while lenders are often one step removed.

ASIC has since issued tailored action letters to each participating lender, recommending measures to reduce consumer harm, including:

• improving product disclosure and addressing problematic sales practices that may expose consumers to unnecessary risk;
• strengthening governance arrangements where manufacturers distribute finance through branded dealership networks, particularly to manage conflicts of interest;
• implementing more targeted product-review triggers based on indicators of consumer harm;
• improving hardship policies and processes; and
• addressing high default rates (especially in the first six months of the loan term), financial hardship rates, and hardship variation rejection rates by reviewing product structures and fees.

ASIC expects that, where it has identified issues, lenders will review their portfolio of loans to identify and assess potentially impacted consumers, including identifying any remediation that may be required. ASIC may take enforcement action, especially where the response is not appropriate.

The report and ASIC's actions align with its 2026 enforcement priorities, particularly the focus on potential misconduct exploiting consumers experiencing financial hardship and predatory lending. It also follows enforcement actions in the automotive finance sector, including:

• a $1.55 million penalty imposed on Money3 Loans for contraventions of its responsible lending and general conduct obligations relating to car finance provided to vulnerable consumers;⁵ and
• Federal Court orders against Diamond Wheels Pty Ltd and Keo Automotive Pty Ltd for providing car loans without a credit licence and charging unlawful and excessive interest.⁶

New Vehicle Efficiency Standard (NVES) compliance

The New Vehicle Efficiency Standard Act 2024 (Cth) (the NVES Act) is now in its second year of operation after entering into effect from 1 January 2025. As the legislative regime matures, attention is turning to the regulatory enforcement approach of the NVES Regulator, with regulated entities beginning to accrue potential liabilities over their compliance with annual vehicle emissions targets.

In February 2026, the NVES Regulator published its first set of annual emissions performance results for the period 1 July 2025 to 31 December 2025. Those results identify the 'interim emissions values' (IEVs) for OEMs, which measure how each entity's registered tailpipe emissions for new regulated vehicles entering the Australian market compare with legislated annual targets.

As explained in our previous update, OEMs returning a positive IEV now face the prospect of potential penalties if they cannot 'balance' their IEV to zero over the next two years, with several OEMs facing substantial exposure based on their 2025 interim results. To mitigate that exposure before it crystallises in 2028, these OEMs will either need to adjust their fleet mix to supply more lower-emissions vehicles and thereby beat emissions targets in future years, or otherwise purchase 'units' from those OEMs that have outperformed their targets.

Under the legislation, the NVES Regulator enforces compliance with the NVES Act and has a suite of powers available, including to issue infringement notices, seek court-ordered civil penalties and make adverse publicity orders. The NVES Regulator has recently published its first guidance clarifying the elements of the compliance model that it will apply when enforcing OEM obligations under the NVES Act. The guidance indicates that the NVES Regulator will take a stepped approach to enforcement, scaling up from cooperative engagement, education and less onerous compliance tools (such as infringement notices) to civil penalty proceedings in cases of deliberate or serious non-compliance.

While the NVES Regulator's enforcement approach remains untested, some key compliance considerations for OEMs in preparing for the transition to an enforcement phase include:

• Unit trading: Although there was a surplus of NVES units in the market in 2025, this may reflect the (relatively) more modest emissions target imposed at the regime's outset. Those targets become increasingly stringent over the next five years, which may constrain the supply of NVES units available for trading. This heightens the need for OEMs to consider the available options to achieve a final emissions value (FEV) of zero or less, as required under the NVES Act.
• Public disclosure commitments: Under s 84 of the NVES Act, the NVES Regulator is required to publish each regulated entity's IEV and unit holdings during the annual reporting period. If an OEM is found in breach of the NVES Act, the NVES Regulator may also seek adverse publicity orders, requiring the entity to publish or advertise its non-compliance. Public reporting by the NVES Regulator may also allow scrutiny by investors, consumers and other stakeholders of the emissions performance of OEMs and, in turn, increase litigation risk associated with public sustainability-related objectives and commitments.  

Connected vehicles: standards essential patents update

Licensing arrangements for standards essential patents (SEPs) are increasingly important for the global automotive industry. This is illustrated in the recent landmark decision of the UK Supreme Court in Tesla v InterDigital and Avanci (Avanci), a case concerning 5G-enabled vehicles.

The decision, handed down on 26 July 2026, confirmed that the English courts' global jurisdiction to decide disputes regarding fair, reasonable and non-discriminatory (FRAND) licensing terms on a worldwide basis extends to those involving patent pool licensing structures, as well as disputes between individual parties. This is particularly relevant with the emergence of connected and autonomous vehicles and increasing reliance upon standardised wireless communications technologies.

Long familiar to the telecommunications sector, SEPs are patents that protect technology essential to implementing the technical specification required by an industry standard that has been established by a standards-setting organisation (SSO), such as the European Telecommunications Standards Institute, which sets global telecommunications standards. Anyone making, using or selling a product that needs to comply with the standard must obtain a licence from the SEP holder, and this includes connected and autonomous vehicles that use wireless communication technology. This puts the SEP holder in a position of considerable commercial leverage. Therefore, SSOs commonly require their members to commit to license their SEPs on FRAND terms as a condition of their technology being incorporated into the standard.

This is a hotly contested area in jurisdictions such as the UK, US, China, Germany and India. While no SEP/FRAND litigation has reached judgment in the Australian courts, local and international businesses that implement standardised technology in Australia are already dealing with demands from SEP holders to negotiate licences. We see this most frequently with connected 'Internet of Things' (IoT) devices and tracker/telemetric technology. The Australian automotive industry is not insulated from its effects, as global SEP holders usually pursue licensing demands simultaneously across any major markets where relevant products are sold. As highlighted by the Avanci case, some foreign courts have confirmed they have global jurisdiction to decide FRAND disputes.

It remains to be seen in what circumstances Australian courts will be willing to grant injunctive relief (eg, where an implementer refuses to accept FRAND terms) and how they will apply competition law (eg, is a refusal to offer a FRAND licence a misuse of market power, and when will courts deem SEP licence terms unfair or unconscionable?). We also expect the statutory compulsory licence scheme under the Patents Act to come into play in any SEP dispute in Australia. It lets a court order a licence where a SEP holder has breached competition law by 'holding up' a FRAND licence and there is unmet demand in Australia that the patent holder has not reasonably met.

Further regulatory developments on connected and autonomous vehicles 

Fully autonomous vehicles (AVs) are not yet permitted to operate on public roads in Australia. However, the National Transport Commission (NTC) has been working with the Commonwealth, State and Territory governments for several years to develop an end-to-end regulatory framework for AVs.⁷ This framework has been supported by guidelines, developed by the NTC and Austroads, to facilitate AV trials.⁸ Waymo has reportedly recently approached the NSW Government to trial its driverless taxis.⁹

While AVs are at the start of their regulatory journey, connected vehicles continue to be the subject of regulatory (and public) focus, and this will likely continue into 2027. In February 2026, the Office of the Australian Information Commissioner (OAIC) confirmed it had two active investigations into vehicle manufacturers over potential privacy breaches.¹⁰

In April 2026, the Department of Infrastructure, Transport, Regional Development, Communications, Sport and the Arts began targeted industry consultation on adopting UN Regulations No. 155 (cyber security) and No. 156 (software updates).¹¹ These UN Regulations would be implemented as two new Australian Design Rules, together with a Road Vehicle Standards rule change. This consultation is ongoing. There have also been recent calls by industry and motoring bodies for connected vehicles to be subject to more stringent cyber and privacy laws.¹²

Proposed privacy reform to impact connected vehicle data

On 31 August 2026, the Attorney-General's Department released a draft bill setting out a series of proposed reforms to the Privacy Act 1988 (Cth) (in the Privacy Amendment (Personal Data Protection) Bill 2026). If passed in its current form, the draft Bill would require a significant overhaul of Australia's privacy framework and directly impact the personal information handling practices of most Australian businesses. Some reforms would directly impact the automotive sector, including proposals to:

• expand the scope 'personal information' to include information 'relating to' a person rather than 'about' them, and clarifications around the potential for certain technical data to be personal information. Data treated as purely 'vehicle' data under current processes may have to be re-assessed; and
• include 'precise geolocation tracking data' as a category of 'sensitive information' under the Privacy Act. This would mean that services that use geolocation data, including fleet monitoring, telematics and connected vehicle services, would require an individual's consent.

Should the reforms pass, the automotive sector would likely need to undertake wholesale assessments of their data handling, consent and notice architecture. Consultation on the draft Bill closed on Friday, 18 September, with further details set out in our separate Insight.

Counting the cost: lessons from Honda's appeal of dealership termination damages

In June 2026, the Victorian Court of Appeal handed down its decision in Honda Australia v Brighton Automotive [2026] VSCA 142, in a partial win for Honda on the question of the quantum of damages arising from its network restructure in 2020.

When Honda Australia restructured its business model in 2020, replacing its authorised dealership network with an appointed agency model, it set in motion a wave of litigation arising from the early termination of dealership agreements. We have previously reported on the proceeding brought in the Supreme Court of Victoria by one of the affected dealers, Brighton Automotive. Honda was ultimately found liable for breaching its contract with Brighton and was ordered to pay $13.7 million in damages. The Court did not, however, find that Honda had engaged in any unconscionable or misleading or deceptive conduct. The Court further confirmed that Honda was entitled to change its business model, and that its failure to seek Brighton's agreement to early termination did not breach its good faith obligation under the Franchising Code.

Honda subsequently appealed that decision, challenging the trial judge's assessment of the quantum of damages. The Court of Appeal has now unanimously allowed the appeal on Honda's first ground of appeal, finding that Brighton had not discharged its onus of proving that Honda would have maintained a sales target of 40,000 vehicles a year in the counterfactual. The Court ordered a recalculation of the damages, ultimately ordering that they be reduced to approximately $10.7 million. The remaining two grounds of appeal were dismissed.

The Honda litigation concerns actions that occurred under a previous version of the Franchising Code of Conduct. It remains to be tested how provisions subsequently inserted into the Code (including the provision for compensation or buybacks for an early termination of a franchise agreement due to a market change event) would be enforced by the courts.

Consumer law reform: steering clear of unfair trading practices

In July 2026, the Federal Parliament passed legislation to introduce an unfair trading practices regime into the Australian Consumer Law, which will come into effect on 1 July 2027.¹³ The reforms aim to capture trading practices that may not clearly fall afoul of existing consumer law prohibitions on misleading conduct, unconscionable conduct and unfair contract terms.

The regime includes a new general prohibition on 'unfair trading practices' and specific obligations targeting drip pricing and subscription contracts. The general prohibition will be contravened where a person engages in conduct that: (a) does (or is likely to) manipulate a consumer or unreasonably distort the environment in which the consumer makes (or is likely to make) a decision; and (b) causes, or is likely to cause, detriment to the consumer, whether financial or otherwise.

The concept of 'manipulating' a consumer is intended to capture wrongful interference that results in a change in the consumer's behaviour, decision-making or actions that is against the consumer's interests. There is no requirement that the person intended to manipulate consumers or acted dishonestly, although the Explanatory Memorandum indicates that 'manipulation' is not intended to capture 'legitimate, reasonable or generally accepted marketing or sales practices'.¹⁴

 The concept of an 'unreasonable distortion' of a consumer's decision-making environment is intended to capture conduct that influences or pressures consumers to proceed with a transaction when they otherwise would not do so, or that otherwise obstructs consumers from making decisions.

While the prohibition is particularly targeted at online conduct, it nonetheless applies generally and will capture conduct in other trading and marketing channels. Examples of potentially unfair conduct stated in the legislation are:

• impeding a consumer's ability to exercise legal rights, or seek legal remedies;
• failing to disclose material information, or disclosing material information in a complex, ineffective, unclear, unintelligible, ambiguous, untimely or overwhelming way; and
• creating an environment that places the consumer under unreasonable pressure, or obstructs consumer decision-making.

The new regime is likely to be relevant at many points in a typical customer's interactions with the automotive sector, including drive-away pricing, consumer finance and add-ons, connected services, warranties and servicing.

Businesses can take action now to prepare for the new regime coming into effect in July 2027, including reviewing consumer sales and servicing journeys to identify areas where there is a risk of consumers being pressured, manipulated, exploited or obstructed when making decisions. Currently, the general prohibition will only apply to dealings with consumers. However, the Government has consulted on extending the prohibition to dealings with small businesses and franchisees, with a view to introducing further legislation later this year.¹⁵ This would be a significant expansion of the regime for the automotive sector as it would likely bring dealer arrangements into scope.

Further details about the new unfair trading practices regime can be found in our dedicated Insight.