New Energy Vehicle Subsidy Policies,Demand Substitution,and Industrial Development

The global new energy vehicle industry is currently undergoing a transition from policy-driven development to market-driven growth.In this transition,incentive policies,primarily government subsidies,play a crucial role in shaping the industry.In China,since the release of the "Energy-Saving and New Energy Vehicle Development Plan(2012-2020)" by the State Council in 2012,both central and local governments have implemented a series of policies to promote the development of the new energy vehicle industry.Among these policies,consumer purchase subsidies have been the most significant and effective.With strong government support,China’s new energy vehicle industry has achieved remarkable success,outpacing other emerging industries with an annual growth rate exceeding 50%.Charging infrastructure has also expanded rapidly,making China the world’s largest new energy vehicle market.Studying and analyzing the theoretical and practical issues surrounding the rapid development and leapfrogging of China’s new energy vehicle industry under the influence of government policies is not only essential for evaluating and optimizing policy designs but also holds significant lessons for the development of other emerging industries in China,such as integrated circuits,chips,and machine tools.This article focuses on the role,evaluation,and optimization of China’s new energy vehicle subsidy policy.It establishes a theoretical framework for policy evaluation based on market feedback,with the central theme being "subsidies-demand substitution-effects."The research examines the microeconomic mechanisms of subsidy policies and employs empirical industrial organization methods,including structural estimation,equilibrium analysis,and counterfactual analysis,using microdata from the new energy vehicle market.The article investigates how to evaluate and optimize new energy vehicle policies from the perspectives of industry scale expansion and product technology upgrading.Based on this analytical framework,the article is divided into eight chapters with the following specific contents:Chapter 1:Introduction-Provides an overview of the research background and significance,defines and explains the scope of the study on new energy vehicles and subsidy policies,and outlines the research approach and methods.Chapter 2:Literature Review-Reviews prior research experiences,methods,and paths related to the three important research directions closely related to this article:emerging industry policies and development,the impact of subsidy policies on market demand,and the effects of new energy vehicle policies.It also explains the inherent connection between previous research methods and the unique advantages of the methods employed in this article.Chapter 3:Promotion Policies for China’s New Energy Vehicles-Reviews the policy support history during the development of China’s new energy vehicle industry,highlighting the differences in policy support at different stages of industry development.It provides detailed information on the scope,beneficiaries,intensity,and subsidy standards of the core research object of this article,the new energy vehicle subsidy policy.The chapter also summarizes general patterns in subsidy policy development and explains new industry promotion policies that have recently emerged.Chapter 4:Basic Facts of Industrial Changes under New Energy Vehicle PoliciesPresents the development of the Chinese automobile industry since the implementation of subsidy policies,with a focus on the high-growth period of the new energy vehicle industry from 2016 to 2019.The analysis covers market changes under relevant policies,including trends in car sales,shifts in product characteristics,geographical distribution of sales,and trends in infrastructure development.Chapter 5:Demand Substitution Analysis under Subsidy Policies-Serves as the opening section of the core chapters and elaborates on the fundamental assumptions of structural equilibrium analysis,along with the corresponding parameter estimation methods.It showcases the rich content of this chapter,including data sources,sample data selection,and the basic characteristics of relevant variables.The chapter also outlines the principles of the structural model analysis,conditions for achieving supply-demand equilibrium,and specific methods for parameter identification.It presents empirical results,general patterns of demand substitution,and an overview of enterprise profits.Chapter 6:Subsidy Policies and Industry Scale Expansion-Building upon the parameter estimation in the previous chapter,this section conducts a detailed analysis of the empirical effects of new energy vehicle subsidy policies on industry scale development.It covers aspects such as price changes before and after the policy,the efficiency of policy transmission,sales analysis under market equilibrium,and the heterogeneity of product sales.Additionally,this chapter includes several counterfactual scenarios,such as uniform subsidies,non-subsidy reduction,and linear growth of subsidies based on vehicle range,to explore the underlying logic of how subsidy policies promote industry scale expansion.Chapter 7:Subsidy Policies and Industry Technology Upgrading-Following the counterfactual simulations in the previous sections,this chapter shifts its focus to the impact of subsidy policies on industry technology upgrading.It decomposes industry technology upgrading into three dimensions:extended driving range,lightweight design,and energy efficiency.Measurements are based on important features such as vehicle range,power-to-weight ratio,and vehicle energy consumption levels.The chapter analyzes the changes in product feature distribution before and after the policy and provides a detailed assessment of the policy’s impact on technology upgrading.It also systematically summarizes the underlying patterns in policy-induced industry technology upgrading.Chapter 8:Conclusion and Policy Implications-As the final part of the article,this chapter provides a detailed summary of the main findings of the research,emphasizing the significant role of new energy vehicle subsidy policies in industry development,including scale expansion and technological innovation.Based on China’s current development plan for the new energy vehicle industry and macro trends in policy development,the chapter offers reasonable policy recommendations.In summary,the main conclusions of this article can be summarized as follows:In the equilibrium analysis of the new energy vehicle market,price elasticity indicates that higher car prices result in less sensitivity to subsidies.Cross-price elasticity suggests that pure electric vehicles have a relatively low substitution effect on traditional fuel vehicles,while plug-in hybrid electric vehicles are more effective substitutes.Regarding equilibrium prices,subsidy policies lower the average market price due to the excessive transmission of subsidies by manufacturers,leading to a greater reduction in new energy vehicle prices than the subsidy amount.Subsidies also increase car sales in the market,as new energy vehicles replace traditional fuel vehicles.In terms of the impact of subsidies on the expansion of the new energy vehicle industry,subsidies have achieved the policy goal of promoting the market size of new energy vehicles.Subsidies contributed to a 53.55%growth in the new energy vehicle market,although this growth has slowed down as subsidies were reduced.In a non-reduction scenario,new energy vehicle sales increased by 31.43%compared to actual subsidy growth.Different subsidy designs have varying effects on sales,with direct subsidies having the strongest promotion effect when controlling for the total subsidy amount.However,the current policy has some ineffective subsidies,with 32.47%of subsidies going to consumers who would have purchased new energy vehicles without subsidies.Despite some inefficiencies,actual subsidy policies still demonstrate efficiency advantages over other subsidy designs,but they exhibit diminishing marginal returns,with the lowest cost efficiency under a non-reduction policy.Regarding the impact of subsidy policies on the technological upgrading of the new energy vehicle industry,subsidies effectively promote technological advancement,but there is room for policy optimization.Firstly,in terms of extended driving range,actual subsidy policies do not hold a competitive advantage in promoting higher range vehicles due to the positive correlation between range and price and the concave demand price elasticity.Linear subsidies based on vehicle range are more effective in promoting high-range new energy vehicle sales and alleviating consumer range anxiety.Secondly,in lightweight design,all types of subsidy policies significantly reduce the distribution of high-performance pure electric vehicles and guide them towards lower power-to-weight ratios.Lastly,in terms of energy efficiency,subsidy policies have minimal impact on the distribution of fuel consumption levels,but they encourage the reduction of energy consumption in medium-efficiency battery electric vehicle models.Among the subsidy policies,linear subsidies based on range have the strongest impact.The innovations of this article include:The utilization of theoretical and methodological frameworks based on heterogeneous product markets for the analysis and empirical evaluation of China’s new energy vehicle subsidy policies.Given the developmental stage of China’s new energy vehicle industry and the emerging nature of the issues involved,this study employs empirical industrial organization methods,which are relatively scarce in current research based on microdata.The estimation of substitution elasticities between electric and fuel vehicles in the Chinese market,enabling a precise identification of the effects of subsidy policies on both the scale and innovation dimensions.Evaluating the impact of new energy vehicle policies heavily relies on the achievement of electric vehicle substitution for fuel vehicles.However,to date,there is limited research that provides substitution elasticities for electric and fuel vehicles in the Chinese market.This study employs structural equilibrium analysis and introduces consumer preference heterogeneity into demand-side modeling to generate a set of more realistic demand substitution relationships,allowing for counterfactual simulations that closely resemble actual policy effects.The application of counterfactual analysis to isolate the net effects of different policies and simulate policy design outcomes.This research utilizes equilibrium analysis to design multiple policy counterfactual scenarios that analyze the net impacts of policy implementation and explore the effects of various policy designs.These counterfactual scenarios disentangle the overlapping effects of multiple policies,providing quantitative answers to policy questions.The limitations of this article lie in the fact that the new energy vehicle industry is still in its early stages of development,and many industry issues have not yet fully manifested.Additionally,the article’s focus is relatively narrow.Furthermore,theoretical research and policy evaluation in emerging industries like this are still in the early stages,with significant challenges arising from the industry’s rapid changes and difficulties in obtaining comprehensive data.