The capital market responses to new energy vehicle (NEV) subsidies: An event study on China

Abstract

Subsidies are crutial for the development of China's New Energy Vehicle (NEV) market. With the country's ambitious goal to achieve carbon neutrality in 2060, NEV is playing a growing role in decarbonising the transport sector. This paper empirically evaluates the effectiveness of three main forms of subsidies: fiscal policy, preferential tax, and government procurement. Specifically, we pay attention to financing issues and use an event study approach to investigate how the capital market responds to these policies. Results show that both preferential tax and government procurement policies have significant positive impacts on NEV stock prices. Relative to lithium-ion battery and NEV manufacturers, charging pile companies benefit less from preferential tax or government procurement. For fiscal subsidy policies, their impacts on NEV stock prices are ambiguous, depending largely on the specific policy contents. An increase in targeted subsidies for those technology-oriented NEV firms has a positive impact on the stock market. However, subsidies falling short of expectations due to frequent policy changes and the removal of local government subsidies are associated with significant negative effects. At this critical stage when the Chinese government is re-designing subsidy policies on NEVs, special attention should be paid to setting a transparent schedule and reducing the potential negative effect caused to the stock market.