The market for electric vehicles in China: modelling the abolition of policy incentives

Abstract

ABSTRACT Government policies that contain incentives have promoted the development of China’s electric vehicle (EV) market from its inception. However, following the dramatic evolution of the EV market, the incentives impose a considerable burden on the State. It is time to consider abolishing various policy incentives. This paper uses the discrete choice experiment (DCE) model to study how consumer behaviours are influenced by the different policies. A system dynamics simulation model is constructed to simulate long-term EV development trends while considering the impacts of these policies. The simulations use the results from the DCE model to measure the sensitivity to policy changes of consumer purchase intentions (measured by consumers’ willingness to purchase EVs). Finally, in relation to likely future policy trends, this study designs policy portfolio scenarios that are a strong mix, mid-mix, weak mix, or fully market-oriented with varied timing for policy implementation, and that are likely to affect the growth of China’s EV market. The results of the simulation indicate that the optimal policies: (1) continue to increase government expenditure and support for the construction of charging facilities; (2) make charging more accessible and convenient; and (3) implement bans on the sale of fossil-fuelled cars. The results also show that the ideal timing for banning the sale of fossil-fuelled cars and, in parallel, cancelling current incentive policies (e.g. consumer purchase subsidies) is around 2025. These changes could reduce government expenditure and thus confer substantial financial savings, and they would effectively promote a significant increase in EV sales. Key policy insights Increasing support for the construction of charging facilities, improving the access and convenience of charging, and implementing bans on the sale of fossil-fuelled cars could increase consumer willingness to purchase EVs in China. Support for the construction of basic charging facilities should continue to increase and accelerate leading up to 2025; this would promote a significant increase in EV sales. To send clear near-term signals to the EV market – both consumers and producers, the Chinese government could usefully implement a ban on the sale of fossil-fuelled cars by around 2025 and in parallel abolish the current incentives policy for EVs. Abolishing current policy incentives (e.g. subsidies and VAT tax exemption) in the same time frame as other policies (e.g. support for charging infrastructure and a ban on fossil-fuelled cars), could lead to substantial financial savings to the government and a rapid scaling in the market for EVs. Lessons learned from China’s potentially large and rapidly growing EV market will have implications for other countries in Asia and beyond.