Competition and welfare effects of introducing new products into the new energy vehicle market: Empirical evidence from Tesla’s entry into the Chinese market

Abstract

Firms introduce new products as a critical competitive strategy. This strategy not only changes the competitive structure of the market, but also provides consumers with a broader range of choices. In this study, we collected sales data for new energy vehicles in six Chinese cities from 2020 to 2021 and used a random coefficient logit model to analyze the competitive and welfare effects of the introduction of Tesla on the Chinese new energy vehicle market. Our empirical findings suggest that consumers prefer electric vehicles that are affordable, have low energy consumption per 100 km, have a moderate range, and are large and heavy. The own- and cross-price elasticities of the vehicle brands show that although Tesla faces fierce competition from Chinese carmakers, it manages to capture a significant market share. In contrast, Chinese emerging brands, represented by the “new forces of car making,” also show strong competitiveness and dominating the market with differentiation strategies. Our counterfactual analysis suggests that the introduction of Tesla has a positive effect on consumer welfare by increasing the variety of electric vehicles available.