The responses of the supply and demand sides of new energy vehicles to subsidy removal: Empirical evidence from China

Abstract

Listen

Translate article

The policy-driven development of China’s new energy vehicle (NEV) has been accompanied by significant fluctuations in the industrial chain due to the substantial fiscal subsidy removal. The study aims to examine the impact that three typical fiscal subsidy removal events enacted by China’s government have on various segments of the NEV industrial chain. The three events were enacted in 2016 (a 20% reduction and a limit for local subsidies), 2018 (raising the threshold, no subsidies for range below 150 km, and a 4-month transitional period), and 2019 (a 50% reduction, full cancelation of local subsidies, and a 3-month transitional period). This is done by applying the event study method and a difference-in-difference framework to finance data from capital market and sales data traffic management bureau. Empirical evidence suggests that, on the supply side, the three removal policies have caused various negative influences on companies involved in the industrial chain, with the midstream (e.g. battery, motor, and electric control) being the component of the chain affected the most by the policy removal. On the demand side, the events in 2016 and 2019 have decreased the vehicle sales in NEV pilot cities nationwide. Rather than discouraging consumer purchases, however, the event in 2018 has counter-intuitively boosted vehicle sales due to proper establishment of the transitional period (in comparison to 2019) of the policy. Further, NEV sales in cities with small population are found to be more dependent on government fiscal subsidies. We offer management suggestions and make policy recommendations for subsidy removal.