Study of the retreating product subsidy policy based on technology thresholds of new energy vehicle consumers

Abstract

The new energy vehicle (NEV) product subsidy policy did not achieve a satisfactory effect on encouraging enterprise R&D as the government ignored the consumer technology thresholds—the minimum requirements of NEV consumers on a specific technology or performance of NEV. We built a game model under subsidies among the government, NEV companies, and NEV consumers considering NEV consumer characteristics such as technology thresholds. We solved the optimal retreating product subsidy policy of the government. We also analyzed the incentive effect, efficiency, and application scope of product subsidy policies and the impacts of the technology thresholds on them. We found that the government should subsidize NEV firms with medium R&D ability and encourage them to upgrade NEV technical level to the upper limit in the current stage or the highest level under financial constraints. The government should gradually reduce the unit subsidy until withdrawn with the improvement of the R&D ability of NEV firms. The technology thresholds increase the optimal unit subsidy and decrease the subsidy efficiency. Furthermore, the retreating policy is a cherry-picking subsidy method that causes companies with lower R&D ability to drop R&D.

Impact of Consumer Subsidy Considering Subsidy Threshold on New Energy Vehicle Firms and Environmental Benefits

“…Among these policies, the consumer subsidy policy is considered effective and necessary, particularly in the initial stage of the development of the NEV market. However, some scholars argued that excessive subsidies make NEVs too reliant on them, which can negatively impact the R&D and innovation of firms and reduce the efficiency of subsidies [14]. Based on a dynamic mathematical model and a numerical analysis of industrial organization, Jeanjean [30] found that the government's subsidy policy has a more significant effect on the "demand side" than other measures.…”

“…We denote the NEV offered by firm i as NEV i (i ∈ {1,2}). The green level for NEV i is denoted by e i , which is the level of technology or performance of a NEV developed by NEV firm i [14]. For instance, firms can enhance the green level (such as increasing carbon reduction of 100 km) of NEVs by optimizing the motor design and control system, which can improve motor efficiency, reduce power consumption per 100 km, and ultimately increase the NEV's carbon reduction per 100 km [32].…”

“…From 2014 to 2023, the delivery of electric vehicles rose from 3.2 million to over 14 million, resulting in a market share increase from 0.4% to 15.8% [13]. However, excessive subsidies have caused some firms to rely on subsidies and even to engage in improper acts to defraud subsidies, thus hindering their efficiency and the technological innovation of NEVs [14]. To address these issues, the government has recently begun to take technical criteria such as greenness as a measure of whether to subsidize and formulated a consumer subsidy policy with greenness or other criteria as the subsidy threshold.…”