Smooth sailing ahead? Policy options for China's new energy vehicle industry in the post-subsidy era

Abstract

The Chinese government views the development of new energy vehicles (NEVs) as a key measure to achieve sustainable development. In 2020, the government proposed the development goals of achieving carbon peak in the automotive industry around 2028 and ensuring NEV sales account for over 50 % by 2035 (referred to as the “two objectives”). Against the backdrop of the cancellation of NEV purchase subsidies in 2023, it is crucial to investigate the direction and intensity of various industry policies' effects and actively adjust industrial policies to achieve the “two objectives”. From the perspective of the Multi-level Perspective (MLP), the technological transition in the automotive industry is a process of legitimacy transfer between new and old technologies driven by the interaction of socio-technical landscape, socio-technical regime, and niches at three levels. This paper, based on the MLP, constructs a system dynamics (SD) model that includes four loops: research and development (R&D), production, sales, and legitimacy competition. Using the SD model, we analyze the direction and intensity of existing policies, in addition to five potential policies, to achieve the objectives. Our findings indicate that without policy adjustments, China's current measures will not meet the “two objectives” in a timely manner. Prioritizing battery recycling, curtailing fuel vehicle (FV) production, facilitating scrapping of FVs and enacting carbon trading policies are pivotal for progress, contrasting with the modest impact of R&D subsidies. A coordinated policy strategy coupled with expedited carbon trading initiatives is essential for the NEV sector's post-subsidy transition to meet the objectives.