When to invest in electric vehicles under dual credit policy: A real options approach

Abstract

This research aims to investigate traditional vehicle manufacturers' green technology investment theory under dual credit policy from the perspective of real options, overcoming earlier investigations of this issue that considered it only from a stability or single uncertainty perspective. An analytical real options model was first provided for traditional automaker investment. Then we solved the analytical solution for the electric vehicle investment threshold based on the uncertainty of credit price and fuel vehicle market scenarios. The optimal electric vehicle investment timing is demonstrated using numerical simulation. Results show that (1) when the fuel vehicle market demand falls to a certain level, automakers will choose to make electric vehicle investments regardless of how the credit price changes in the market; (2) the effect of volatility on the investment threshold depends on the covariance or correlation coefficient; (3) the numerical simulation results revealed that the credit price drift rate, risk‐free rate, correlation parameters, and electric vehicle production cost all have a positive impact on the electric vehicle investment region, whereas the drift rate of fuel vehicle and electric vehicle production cost have a negative impact. These results can be used to make theoretical conclusions about electric vehicle investments.

Optimal timing for nonsubsidized policy implementation in the electric vehicle industry

“…Another stream of literature closely related to our paper is the studies on the nonsubsidized policies for EVs, for example, building EV charging stations (Aghalari et al, 2021; Kumar et al, 2021; Liu et al, 2023; Yu et al, 2022), license plate (Li, Jiao, & Tang, 2019; Xian et al, 2022), free parking and road toll (Zhang & Qin, 2018). A growing number of researchers have focused on the charging infrastructure, such as the optimal distribution of chargers (Kontou et al, 2019; Yang et al, 2017; Yi & Bauer, 2016; Yu et al, 2016) and the investment model (Kumar et al, 2021; Wang & Deng, 2019; Yu et al, 2022).…”

Optimizing the Growing Dual Credit Requirements for Automobile Manufacturers in China’s Dual Credit Policy

“…Hence, to achieve sustainable development under the DCP, AMs must strategically plan their longterm investment in capacity expansion and research and development (R&D) for different vehicle types. Previous studies have explored the impact of the DCP on AMs' short-term production decisions [8][9][10] and long-term R&D strategies [11][12][13][14][15][16][17]. However, these studies often focus on the decisions of a single AM and assume exogenous credit prices without considering the interactions between the credit trading market and AMs' decisions.…”