Manufacturing Decisions and Government Subsidies for Electric Vehicles in China: A Maximal Social Welfare Perspective

• Main Authors: Xiaoxue Zheng, Haiyan Lin, Zhi Liu, Dengfeng Li, Carlos Llopis-Albert, Shouzhen Zeng
• Format: Article
• Language: English
• Published: MDPI AG 2018-03-01
• Series: Sustainability
• Subjects: electric vehicle; China’s subsidy policy; EVs manufacturing decisions; social welfare; environmental impact
• Online Access: http://www.mdpi.com/2071-1050/10/3/672

In order to address challenges in the sustainable development of transportation, economy, and environment, governments of China and conventional automobile manufacturers are extremely concerned about the development of the electric vehicle (EV) manufacturing industry and market. However, owing to the limitations of EVs and the government economic policies on decreasing subsidies in China, many manufacturers are worried about entering the EV market. Given the low consumer preference for EVs, using a leader-follower Stackelberg game model, we investigate the impact of government a subsidy on the optimal production and pricing decisions of an auto manufacturer who could produce both EVs and conventional vehicles. We characterize whether/under what conditions the manufacturer’s decision to offer EV products under government subsidy, whilst increasing its profits (a win-win situation). On the policy side, we delineate how government a subsidy can be set to realize the inherent economic, environmental, and social benefits of EV production (the triple win of EV production). We further investigate the impact of EV manufacturing- and society-related factors on the balance among manufacturer profits, environmental impact and social welfare. This study also finds that the adoption of EVs is not bound to be beneficial for the environment.