Transportation Research Part A 167 (2023) 103558

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Transportation Research Part A

journal homepage: www.elsevier.com/locate/tra

Designing government subsidy schemes to promote the electric

vehicle industry: A system dynamics model perspective
Yina Li a, Chenchen Liang a, Fei Ye a, *, Xiande Zhao b
a
School of Business Administration, South China University of Technology, Guangzhou 510640, China
b
Department of Economics and Decision Sciences, China-Europe International Business School (CEIBS), Shanghai, China

A R T I C L E I N F O A B S T R A C T

Keywords: To ensure green and sustainable development, how to design effective subsidy schemes to pro­
Electric vehicle mote the electric vehicle (EV) industry has become a critical problem faced by governments. In
Government subsidy scheme this paper, using a system dynamics (SD) model that incorporates the dynamic interactions be­
CO2 emission reduction
tween government, manufacturers, and consumers, we investigate the effects of different subsidy
Subsidy efficiency
System dynamics model
schemes (an acquisition subsidy vs a Research and Development (R&D) subsidy, as well as dy­
namic vs static subsidies) on the EV industry and environmental protection. Using empirical
evidence from China, we verify the proposed model and predict that both an acquisition subsidy
and an R&D subsidy can boost EV demand and reduce CO2 emissions. The acquisition subsidy
helps to stimulate the sales of EVs more quickly and to a greater extent in the short term, but at
great expense; for a given level of government expenditure, the R&D subsidy is more effective in
promoting EV penetration and mitigating CO2 emissions. Moreover, the dynamic R&D subsidy
scheme outperforms the static one in terms of subsidy efficiency. The study has implications for
policy makers designing a subsidy scheme to promote the development of the EV industry.

1. Introduction

With the rapid development of the world economy, environmental problems have become increasingly serious, global warming in
particular. Global warming has resulted from the historic and large-scale emissions of greenhouse gases (GHG), notably carbon dioxide
(CO2). Data from the International Energy Agency (IEA, 2016) show that CO2 emissions from the transportation sector alone currently
account for nearly-one-third of the world’s total emissions and this proportion is estimated to exceed 50% by 2030, which is related to
the increasingly widespread use of internal combustion vehicles (ICVs) (Lin and Du, 2015).
As an alternative to ICVs, electric vehicles (EVs) have been regarded by many countries as a key way to address global warming,
given that a growing proportion of electricity is generated from renewable sources (Muneer et al., 2015). However, even though EVs
are more environmentally friendly than ICVs and many consumers express increasing concerns about the environment, the market
penetration of EVs remains small in most countries (Liao et al., 2018).
Against that background, many countries have implemented incentive policies to stimulate the EV industry and consumer uptake
(Zhu et al., 2019; Ye et al., 2021). Subsidy is one such policy, and plays a key role. In general, there are two types of subsidy scheme for
the EV industry: acquisition subsidy and Research and Development (R&D) subsidy. An acquisition subsidy is provided to consumers

* Corresponding author.
E-mail addresses: bmliyina@scut.edu.cn (Y. Li), liangchenchen3001@163.com (C. Liang), yefei@scut.edu.cn (F. Ye), xiande@ceibs.edu
(X. Zhao).

https://doi.org/10.1016/j.tra.2022.11.018
Received 12 May 2021; Received in revised form 31 August 2022; Accepted 26 November 2022
Available online 14 December 2022
0965-8564/© 2022 Elsevier Ltd. All rights reserved.
Y. Li et al. Transportation Research Part A 167 (2023) 103558

when they buy an EV. For instance, a subsidy up to 6000 EUR is provided by the German government to buyers of EVs costing less than
60,000 EUR. An R&D subsidy is provided to manufacturers to encourage them to exert more effort in EV technological innovation. For
example, in 2019 Innovate UK in the UK provided 20 million pounds of R&D funding to advance low-carbon automobile propulsion
technology. These subsidy schemes can be either static or dynamic. A static subsidy remains unchanged over the period, while a
dynamic subsidy changes in value over time – in practice, almost always decreasing, as is the case, for example, in Germany and with
China’s acquisition subsidy for new-energy vehicles (NEVs).
Though both an acquisition subsidy and an R&D subsidy help to promote the development of the EV industry, their effects might be
quite different. The majority of the literature on the effect of different subsidy schemes has, though, ignored the optimal choice of the
type of subsidy scheme from a government standpoint. Moreover, “Policy makers cannot develop effective subsidy programs for green
technologies without a clear understanding of what drives consumers to adopt the technologies and companies to invest in them” (Stauffer,
2013). Considering the important role that government subsidy plays in the EV industry, a series of research questions arise: Taking
account of the interactions between government, manufacturers, and consumers, what are the effects of a static/dynamic acquisition
subsidy and R&D subsidy? Which one will be better able to achieve the target for EV adoption set by the Chinese government? Given
the same subsidy budget, which type of subsidy is the most efficient?
To address these questions, we use a system dynamics (SD) model to capture the dynamic interactions between government,
manufacturers and consumers, and take China’s EV industry as a case study to examine the effects of different subsidy schemes on the
development of the EV industry and on environmental protection. The findings help to develop a holistic understanding of the EV
system, and will be of great help in the formulation of a scientific subsidy scheme that promotes the development of the EV industry on
the basis of the changes in the decision-making behavior of consumers and manufacturers at different phases of EV development.
The structure of this paper is as follows. Section 2 reviews the related literature and highlights the contributions of this study.
Section 3 sets out the methodology and the SD model. Section 4 describes the setting scenarios, details the sources of data, and val­
idates the model. Section 5 presents and discusses the results, and is followed by a sensitivity analysis in Section 6 and policy im­
plications in Section 7. Section 8 summarizes the conclusions of the study. All details of the methodology are provided in the Appendix.

2. Literature review

This study is broadly related to the literature on the effects of government subsidy schemes in the EV industry. We briefly discuss
the related literature and highlight our contributions.

2.1. Literature on government subsidy

Many scholars have investigated, from different perspectives, the impact of government subsidy on the decisions of EV manu­
facturers and consumers, and its effectiveness in promoting the EV industry. For example, Huang et al. (2013) explored the pricing
decisions of manufacturers when the government subsidizes EVs under the duopoly of an ICV supply chain and an EV-ICV supply chain.
Luo et al. (2014) studied the impact of government subsidy ceilings and price discounts on the pricing decisions of EV manufacturers
and retailers in an EV supply chain. Shao et al. (2017) suggested that EVs can bring extra green utility to consumers compared to ICV
due to consumers’ awareness of the need for low-carbon transport, and proposed that a consumer subsidy should be provided by
government to push EV adoption. Hardman et al. (2017) conducted a statistical analysis of market data and found that purchase
incentives have a positive impact on the market share of Plug-in EVs. Clinton and Steinberg (2019) demonstrated that purchase rebates
in the US would lead to additional battery EV registration, using both difference-in-differences and synthetic controls methods for
analysis. They reported that, for every $1000 increase, registrations would increase at a rate of approximately 8%. Similarly, Azar­
afshar and Vermeulen (2020) evaluated the impact of an acquisition incentive on the sales of NEVs from 2012 to 2016 in Canadian
provinces, and found that sales increased by 5% to 8% with a C$1000 increase in acquisition incentive. Fan et al. (2020) built a game
model to explore the pricing strategies of domestic and international EV manufacturers under government subsidies.
In addition, researchers have explored dynamically adjusted government subsidies, which take account of the pattern and progress
of technological innovation. For example, Jorgensen and Zaccour (1999) studied how government design the optimal consumer
subsidy and guaranteed purchases polices to stimulate the adoption of green technology. The consumer and government had the
option of buying a green product and an alternative product (a mature technology), depending on the difference between the price of
the two products. Under the budget constraint on the government’s expenditures assumption, they found that the government’s
optimal subsidy rate decreases over time. By constructing an evolutionary game between government and automakers, Liu et al.
(2017) explored the impact of static and dynamic subsidies and an emissions tax on the EV industry, and found that dynamic subsidies
are more effective. Zhou et al. (2019) also used evolutionary game theory to test the impact on the EV industry of an acquisition
subsidy and taxation preference under both static and dynamic scenarios. The results show that a dynamic strategy, under which the
game had a stable equilibrium, was more effective.
In recent years, some scholars also have begun to compare the effects of different government subsidy schemes using analytical
modelling methods. For example, Raz and Ovchinnikov (2015) studied the impact of a consumer rebate mechanism and a firm subsidy
mechanism on the pricing and supply of EVs, so as to design government incentives. Sun et al. (2019) explored the different effects of
consumer subsidy and manufacturer subsidy on the EV industry using an agent-based model and found that a consumer subsidy is more
effective than a manufacturer subsidy. Deng et al. (2020) explored how EV manufacturers make pricing and production decisions in
response to an acquisition subsidy and a production subsidy, and how government should formulate subsidy schemes. Rasti-Barzoki
and Moon (2021) found that increasing the government subsidy offered to manufacturers and reducing that to customers is conducive

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to increasing the number of EVs and reducing CO2 emissions.

2.2. The position of this study

It is evident that a substantial amount of research has been done on government subsidy in the EV industry. However, these studies
neither portray the dynamic interactions between different types of government schemes, manufacturers and consumers, nor examine
the effectiveness and efficiency of the different government schemes with the use of real-world data. They therefore fail to inform the
choice of subsidy scheme from the government standpoint. To overcome the research gap, this paper uses a system dynamics model
and empirical data from China to study the effects and efficiency of different subsidy schemes in relation to EV penetration and CO2
emissions reduction.
A system dynamics (SD) model, first proposed by the SD Group at MIT in the 1950 s, is used to quantify the causality of internal
components of a system by various equations and follows the logic that all systems have a structure determining their function
(Forrester, 1959). The approach has been extensively applied within many fields, for example energy and medicine (Guo and Guo,
2015; Brittin et al., 2015). In recent years, some scholars have used SD models to study the effect of government subsidies in the EV
industry. Liu and Xiao (2018) constructed an SD model that includes government and enterprises to discuss the effectiveness of an
acquisition subsidy and a carbon emissions trading scheme, and suggested it would be unwise to eliminate the acquisition subsidy. Lu
et al. (2017) built a framework that includes government, manufacturer, infrastructure and consumers, and conducted research on the
allocation of government financial subsidies. Similarly, Kong et al. (2020) suggested that an acquisition subsidy should be tailed off
over a period, rather than abruptly stopped, and in its place a production subsidy, carbon emissions trading and license restriction
policies should be implemented.
However, account needs to be taken of consumers’ purchasing behavior, as well as the interactions among government, manu­
facturers and consumers, if the research questions set out in this study are to be answered. The main contributions of this study are
threefold. First, by using an SD model, this study analyzes the decision-making behavior of the government, manufacturers and
consumers in the EV system, and then takes account of the dynamic interactions between them to better describe real-world situations.
Second, we consider the effects of two types of government subsidy scheme on EV sales and CO2 emissions reductions using scenario
simulations, then extend the analysis to compare these static subsidies against dynamic subsidies, as well as the situation where there is
a fixed subsidy budget. Third, we consider two objectives for the government when selecting the optimal subsidy scheme, and
introduce subsidy efficiency regarding environmental improvements. Thus, this study provides a more holistic understanding of the EV
system and insights for policy makers seeking to design an effective green subsidy scheme.

Fig. 1. Causality diagram for the SD model.

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3. Methodology

3.1. Model overview

In this study, the SD model is used to simulate the development of EV penetration, which is a dynamic and complex system with
feedback and causal loops. We focus on describing the relationships between government, manufacturers and consumers, and examine
the effects of government subsidy schemes on the other stakeholders and the efficiency of those schemes. The SD model has three
modules: the government module, the manufacturer module, the consumer module. The interactions between them are shown in
Fig. 1.
Under the R&D subsidy scheme, the government provides an R&D subsidy for the EV manufacturer to have an impact on its
innovation effort to increase the technological maturity of EVs. The manufacturer’s technology innovation and production behavior
will determine the retail price of the EVs, which will impact the life cycle cost (LCC) of the EV and therefore consumers’ purchase
decisions. Under the acquisition subsidy scheme, the government offers an acquisition subsidy to consumers when they buy EVs, which
will impact the sales of EVs. The sales volume of EVs in turn affects the production and price decisions of the manufacturer, as well as
the consumers’ purchase decision. Then we can calculate the efficiency of each type of government subsidy. Thus, a closed feedback
system is formed.

3.2. Flow diagram

Establishing a flow diagram is a necessary step to model and fit the inter-relationships between the variables with a series of
equations with which we can build the quantitative relationships between the variables in the SD model (Movilla et al., 2013). In this
section, we describe the flow diagrams in each module. In our SD model, all the variables and relationships among them are matched
by real-world data, theoretically and empirically. The formulas and parameters in the model are detailed in the Appendix.

3.2.1. Government module

The government can provide either an R&D subsidy or an acquisition subsidy to promote the development of the EV industry. Both
subsidy schemes can post significant influences on the behavior of the manufacturer and the consumer, as shown in Fig. 1. From the
government’s standpoint, evaluating the efficiency of these two subsidy schemes on environmental protection and choosing the

Fig. 2. Flow diagram of the government module.

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optimal subsidy scheme is of particular importance, especially in the real-world situation of budgetary constraint.
In this study, we use the economics definition of ‘efficiency’, which is based on the input–output ratio. In the present context,
efficiency therefore refers to the level of CO2 emission reduction for each dollar of subsidy expenditure (Wu et al., 2015; Li et al.,
2020a):
Efficiencyofgovernmentsubsidy = CumulativeCO2emissionreduction/Cumulativegovernmentsubsidyexpenditure (1)
Obviously, a higher value indicates greater subsidy efficiency. Here, the cumulative CO2 reduction is the difference between the
total CO2 emissions of ICVs and the total CO2 emissions of EVs, which is calculated by the CO2 emission reduction achieved by
substituting an ICV with an EV multiplied by the total sales number of EVs. Following the majority of studies (Feng et al., 2019; Kong
et al., 2020; Liu and Xiao, 2018; Wang et al., 2019) and using data from the China Association of Auto Manufacturers, we can calculate
the per vehicle CO2 emission of ICVs and EVs, which is related to the mileage and the electricity/fuel oil consumption (the details are
provided in the Appendix). The flow diagram of the government module is shown in Fig. 2.

3.2.2. Manufacturer module

The manufacturer module simulates the manufacturer’s R&D investment, production quantity and price decisions and revenue
when taking the government subsidy scheme and consumers’ response into consideration. The flow diagram is shown in Fig. 3.
Following Wang et al. (2012) and Wang et al. (2019), we assume that the manufacturer’s suggested retail price (MSRP) for an EV or
an ICV includes direct cost, indirect cost. The direct cost is the production cost (PC), which consists of the power system cost (PSC) and
glider cost (GC) and base fixed cost (BFC). The indirect cost includes management cost and sales cost, which is calculated from product
of production cost and price markup here. Therefore, the MSRP for an EV and an ICV can be calculated by Eq. (2):
MSRP = PC + IC = (PSC + GC + BFC) × (1 + Pricemarkup) (2)
In addition, PSC and GC will decrease as a result of the learning effect. The learning effect describes the accumulation of knowledge
as production proceeds. The progress ratio indicates the percentage reduction in the production cost for every doubling of production
(Tsuchiya and Kobayashi, 2004), as shown in Eq. (3). Moreover, the progress ratio is affected by the technology maturity, which in turn
will be affected by the R&D investment and innovation capability. Technology maturity takes a standard assumed “S”-type trend, that
is, it develops slowly in the early stage, quickly in the middle stage, and then levels out in the later stage (Altshuller, 1984). The
increasing technology maturity will not only determine the progress ratio affecting the production cost reduction for EVs, but also
increase the consumer utility and purchase behavior.
Progressratio
Learningeffect = (Cumulativeproduction/Minimumproduction)LOG2 (3)

3.2.3. Consumer module

A consumer discrete-choice model is widely used to study consumers’ purchase decisions and estimate the market share of

Fig. 3. Flow diagram of the manufacturer module.

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alternatives. Following Ben-Akiva et al. (2010), we use Eq. (4) to calculate the indicated market share of EV, representing the pro­
portion of consumers who choose to buy an EV rather than an ICV in any given year.
Indicatedmarketshare = 1 − exp( − Combinedutility) (4)
Following the literature on EV adoption (Shepherd et al., 2012; Feng et al., 2019; Wang et al., 2019), we use the multiplicative
approach to describe the consumers’ combined utility of an EV, which covers LCC attractiveness, attribute attractiveness, network
externality, and environmental awareness.
Combinedutility = LCCattractiveness × Attributeattractiveness × Networkexternality × Environmentalawareness (5)
LCC attractiveness. Following Wang et al. (2017a), Liao et al. (2017) and Li et al. (2020b), the LCC of the two types of vehicles is the
sum of three components: (1) the acquisition cost, which is the sum of the manufacturer’s suggested retail price, license fee, purchase
tax, acquisition subsidy, purchase tax exemption and the monetary value of the purchase restriction recession; (2) the operation cost,
which includes energy consumption and additional expenditures (e.g. parking fees, road tolls, etc.) and the economic benefits from any
supporting policies (e.g. driving restriction rescission, public charging fee, road privileges, etc.); (3) the resale value, determined by the
depreciation rate. The supporting policies are given the monetary values calculated by Wang et al. (2017b), and their expiry date is
hypothetically set as 2030, except that the purchase tax full exemption will be cancelled in 2022.
Attribute attractiveness. Attribute attractiveness refers to the factors that will improve consumers’ satisfaction with an EV. Based on
previous research, three attributes are included in the model: (1) Technology maturity. High technology maturity usually represents
greater security, reliability and better quality (Zhang et al., 2017). (2) Convenience of use. For an EV, convenience usually relates to the
distance/range per charge (Hess et al., 2012). (3) Convenience of charging, which is affected by the total number of charging points
and commercial activity innovation (Feng et al., 2019; Ma and Fan, 2020). On the one hand, a substantial charging points brings
convenience to consumers and is an effective way to promote EV adoption until further technological innovations on energy storage
and high-power charging (Ma and Fan, 2020). On the other hand, in social commerce era, individuals share their knowledge, expe­
riences and information about the products and services within social network supported by information and communication tech­
nology (ICT) and Internet of Things (IOT) (Hajli, 2014). Commercial activity innovation helps the integration of social commerce with
the EV network, so as to provide EV drivers with good virtual experiences and facilitate the convenience of using the fixed number of
charging points through exploiting real-time data sharing on location and availability of them (Feng et al., 2019). Following Feng et al.
(2019), we use the following Eq. (6) to calculate commercial activity innovation in EV social commerce.
Commercialactivityinnovation = (1 + α × maturityofICT) × thelevelofcommercialinnovation × Socialnetworkscale (6)
In Eq. (6), ICT is the foundation for commercial activity innovation. With the maturity of ICT, the perceived ease of use for con­
sumers will be increased (Liang and Turban, 2011). The Gartner Hype Cycle (which includes five stages named Innovation trigger,
Peak of inflated expectation, Trough of disillusionment, Slope of enlightenment, Plateau of production) is applied to measure the
maturity of ICT (Fenn and Raskino, 2013), and α > 0 represents the coefficient of the impact of the maturity of ICT. In addition, the
commercial activity innovation includes activities of marketing, information, collection, recommendations, and transactions in social
commerce (Liang and Turban, 2011), thus, its success also depends on the level of commercial innovation and the social network scale
of the EV network through externality (Feng et al., 2019). The level of commercial innovation can be measured by the four life cycle
stages of the business model proposed by Wirtz (2011) (that is, introduction, growth, maturity and stagnation). The social network

Fig. 4. Flow diagram of the consumer module.

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scale of the EV network is positively related to the total number of people who purchase EVs, as well as the consumer’s preference for
the commercial activity innovation, both will increase the attractiveness of EV for consumers.
Network externality. Network externality refers to the fact that the utility a consumer obtains from a commodity increases with the
total number of people who purchase the same commodity (Katz and Shapiro, 1985; Lobel and Perakis, 2011). Here we use the concept
of “willingness to consider” by Struben and Sterman (2008) to describe network externality. The willingness of consumers to consider
purchasing an EV will increase with total social exposure to EVs, which is affected by the proportion of the market accounted for by
EVs, marketing and so on to increase consumers’ familiarity with EVs. However, consumers’ willingness to consider purchasing an EV
will be decreased by a decay rate if they are not frequently exposed to EVs, or at least the notion of owning one. Therefore, we get Eq.
(7):
∫t
Networkexternalityt = [Totalsocialexposure × (1 − Networkexternalityt− 1 ) − Decayrate × Networkexternalityt− 1 ] (7)
0

Environmental awareness. In many empirical studies and modeling papers, the importance of consumers’ environmental awareness
in their purchasing decisions has been discussed. In 2014, a global survey released by Nielsen reported that 69% of Chinese re­
spondents preferred to purchase products produced by socially responsible and environmentally aware businesses, which was up 10%
from 2013 (Nielsen, 2014). Furthermore, researchers have reported a significant positive effect of environmental awareness on
consumers’ willingness to pay for an EV (Okada et al., 2019; Bai et al., 2020; Li et al., 2020c; Rotaris et al., 2021). Austmann and Vigne
(2021) proposed that environmental awareness has at least some impacts on the EV market, in their panel regression analysis of 29 EU
countries. Therefore, in our model, we introduce the variable “environmental awareness” in an exploratory way. According to the
Environmental Survey Report 2011 released by Tetra Pak, we assume that consumers’ environmental awareness was 1 in 2010, and
has grown at a specified annual rate that will continue through to 2030 (ESR, 2011). The flow diagram is shown in Fig. 4.

4. Scenario settings and data specification

4.1. Scenario settings

To investigate the impacts of different subsidy schemes on the sales of EVs and the CO2 emission reductions, we set the six scenarios
shown in Table 1.

4.2. Data collection

In order to guarantee the validity and authenticity of the SD model, we first use real-world data published on official websites and
by national institutions, as listed in Table 2.

4.3. Model validation

In order to guarantee the appropriateness and reliability of the proposed SD model, we first conduct a validation test. The validation
test assesses whether the results generated by the model are in accord with the observed real-world reference data (Barlas, 1989).
The validity of the SD model is measured by the absolute percentage error between the actual data and the simulation results over
the period 2010–2020. We compare the simulation results with the historical data on the annual sales of EVs and the total numbers of
ICVs from 2010 to 2020. All the absolute errors are less than 10%, as shown in Table 3 and Fig. 5. Therefore, we can conclude that our
model has passed the validity test and can be used for further prediction and discussion for the period 2021–2030.

Table 1
Six scenarios.
Scenario Subsidy Scheme

Scenario 1 The government provides neither an acquisition subsidy nor an R&D subsidy.
(No subsidy)
Scenario 2 The government provides a static acquisition subsidy for consumers.
(Static acquisition subsidy only)
Scenario 3 The government provides a static R&D subsidy to the EV manufacturer.
(Static R&D subsidy only)
Scenario 4 The government provides both the static acquisition subsidy and the static R&D subsidy simultaneously.
(Two-way static subsidy)
Scenario 5 The acquisition subsidy is set to decrease by 10% annually from 2021 to 2030
(Dynamic acquisition subsidy)
Scenario 6 The R&D subsidy from government is reduced by 10% annually from 2021 to 2030
(Dynamic R&D subsidy)

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Table 2
Variable specification and data sources.
Variable Setting Unit Data source

Enterprise R&D intensity 0.05 Dmnl China Industry Statistics Yearbook

Price markup 0.47 Dmnl
R&D subsidy 2.2 (2006–2010) 108 RMB
5.6 (2011–2015)
6.0 (2016–2020)
20 (2021–2030)
Unit acquisition subsidy (10,9.5,9,9,6.6,6.6,6.6,2.7,2.43) (2013–2020) 104 RMB Financial Support Policy for the Promotion of NEVs
1.3 (2021–2030)
Electricity price 0.68 RMB China Power Enterprises Association
Oil price – RMB Oriental Wealth Network
Purchase tax rate 10 % Vehicle Purchase Tax Law
Electricity consumption – kWh/km China Association of Auto Manufacturers
Fuel oil consumption – L/100 km
Mileage of an EV 15,000 km/year
Mileage of an ICV 15,000 km/year
Depreciation rate of an EV 6 %
Depreciation rate of an ICV 8 %
EV lifetime 15 Year
ICV lifetime 15 Year
Distance per charge – Km
Total number of EVs (2009) 0.72 104
Total number of ICVs (2009) 4574.91 104
EV scrapped rate 5 %
ICV scrapped rate 6 %
Newly-added charging point 40 104 /year Guide for the Development of Electric Vehicle Charging Point
CO2 emission of electricity – kg/kWh China Energy Network
CO2 emissions of fuel oil 2.3 kg/L Intergovernmental Panel on Climate Change

Note: Details of other variables and data are given in Appendix.

Table 3
Comparisons of historical and simulation data.
Year Annual sales of EVs (106 vehicles) Total amount of EV (106 vehicles) Total number of ICVs (106 vehicles)

Historical Simulation absolute error Historical Simulation absolute error Historical Simulation absolute error
data data data data data data

2010 0.001 0.001 0 – – – 59.39 61.45 3.47%

2011 0.0056 0.006 7.14% – – – 73.27 76.93 5.00%
2012 0.0114 0.012 5.26% – – – 88.39 92.92 5.13%
2013 0.0146 0.015 2.74% – – – 105.02 111.86 6.52%
2014 0.045 0.0467 3.78% – – – 123.39 129.96 5.32%
2015 0.247 0.241 2.43% 0.33 0.349 5.76% 140.99 146.69 4.04%
2016 0.409 0.432 5.62% 0.73 0.763 4.52% 163.30 165.32 1.24%
2017 0.652 0.642 1.53% 1.25 136.6 9.28% 185.15 184.33 0.44%
2018 0.984 0.936 4.88% 2.11 2.234 5.88% 205.75 200.49 2.55%
2019 0.972 0.984 1.23% 3.10 3.107 0.22% 225.13 212.99 5.39%
2020 1.116 1.209 8.33% 4.00 4.161 4.02% 242.85 224.01 7.76%

Fig. 5. The comparison of historical data and simulation results for the period 2010–2020.

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5. Results and discussion

5.1. The static scenarios

5.1.1. Effect on the annual sales of EVs and total number of EVs during 2021–2030
The annual sales of EVs from 2021 to 2030 in the four scenarios are shown in Fig. 6, which indicates that the acquisition subsidy,
the R&D subsidy, as well as the two-way subsidy all stimulate the annual sales of EVs. Fig. 6 shows that using present real-world
subsidy data, the acquisition subsidy helps to stimulate the sales of EVs more than the R&D subsidy, but at the expense of more
subsidy expenditure. When a new, innovative technology emerges, an appropriate acquisition subsidy can rapidly increase the market
share of the technology. Notably, with an R&D subsidy, there is no big jump in EV sales until 2024, which is due to the lag effect of R&D
investment. R&D is a slow process with an “S”-type trend; that is, it develops slowly in the early stage, quickly in the middle stage, and
then levels out in the later stage. Obviously, EV sales under the two-way subsidy scheme are always higher than those under either of
the single-subsidy schemes. However, the increase in the total number of EVs under the two-way subsidy scheme is not as high as the
sum of the increases under the separate subsidy schemes.
Fig. 7 shows the total number of EVs during 2021–2030 under the different subsidy schemes. According to the New Energy
Automobile Industry Development Plan (2021–2035) released by the Ministry of Industry and Information Technology (MIIT, 2020),
the target for the total number of new energy vehicles (NEVs) in China is 80 million by 2030. The sales data on NEVs and EVs for
2010–2020 from the National Bureau of Statistics show that EVs account for 78% of all NEVs. Thus, to meet the target, the total number
of EVs needs to reach 62.4 million by 2030.
As shown in Fig. 7, the total numbers of EVs under the four scenarios reach 10.74, 11.31, 10.88, 11.68 million by 2025, and 30.24,
33.58, 31.33, 34.55 million by 2030, respectively. Even under the two-way subsidy scheme, the Chinese government’s target for EVs
therefore looks unlikely to be met, especially in light of the fact that government plans to eliminate its acquisition subsidy in 2022.
The impact of acquisition subsidy on the adoption of new technologies is immediate and instant, which is a direct price concession
for consumers reducing the purchase cost of EVs. While the R&D subsidy is used to reduce the production cost of EVs by encouraging
manufacturers’ innovation, and lower the retail price and promote the sales of EVs consequently. The impact of R&D subsidy is time-
delay, because the reduction in production cost of EVs through R&D efforts takes time for accumulation (Sun et al., 2019). However, it
may be unfair to conclude that it is better for the government to implement an acquisition subsidy rather than an R&D subsidy based on
these results, because the subsidy expenditure under the two schemes differs. Therefore, we go on to test the efficiency of the two
subsidy schemes, as well as results given a particular level of budget, to tease out the implications.

5.1.2. Subsidy efficiency

As discussed above, we test the subsidy efficiency in relation to environmental improvement for each dollar of subsidy expenditure,
that is, how much CO2 emissions can be reduced for each dollar spent (Wu et al., 2015; Li et al., 2020a).
From the results presented in Figs. 6 and 7, and using Eq. (1), we can calculate the cumulative CO2 emission reductions over the
period 2021–2030 due to the replacement of ICVs by EVs, as shown in Fig. 8. By 2030, the cumulative CO2 emission reductions reach
218.25, 237.28, 225.21, 244.72 million tons in scenarios 1–4, respectively. Thus, the cumulative CO2 emission reductions under the
acquisition subsidy scheme is higher than that under the R&D subsidy scheme. However, if we take the absolute amount of subsidy
expenditure into account, we find that the efficiency of the R&D subsidy scheme is much higher than that of the acquisition subsidy
scheme, as shown in Fig. 9. The efficiency of the acquisition subsidy scheme increases slowly and steadily, from 7.49 thousand tons per
100 million RMB in 2021 to 33.29 thousand tons of CO2 reduction per 100 million RMB in 2030. However, the subsidy efficiency of the
R&D subsidy scheme grows exponentially, reaching 87.71 thousand tons CO2 reduction per 100 million RMB in 2030. The results
suggest that the R&D subsidy can achieve more CO2 emission reductions for each dollar of subsidy expenditure.
In summary, when considering the historical real-world data, the acquisition subsidy can significantly reduce CO2 emissions by
greatly increasing the sales volume of EVs. However, this is at substantial cost, which suggests that a government subsidy for con­
sumers is not a long-term solution. In contrast to the acquisition subsidy, an R&D subsidy can fundamentally settle the issues faced by

Fig. 6. The annual sales of EVs during 2021–2030.

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Y. Li et al. Transportation Research Part A 167 (2023) 103558

Fig. 7. The total number of EVs during 2021–2030.

Fig. 8. Cumulative CO2 emission reductions.

Fig. 9. Efficiency of different subsidy schemes.

an emerging technology. In the early stage, the government must guide the EV industry by supporting investment in R&D to induce a
scale effect. As the market expands, manufacturers will invest more in R&D, with the aim of becoming the industry leader. In general,
the total cost of the R&D subsidy is much less than that of the acquisition subsidy. Therefore, the R&D subsidy is more efficient,
especially in the later stages of industry development. However, the important issue of the R&D subsidy for the government is how to
monitor and evaluate whether the subsidy has really been put into the related innovation activities, considering the subsidy scandal in
the EV industry.

5.2. Results under dynamic subsidy scenarios

In static subsidy schemes, we assume that the level of subsidy, either in the acquisition scheme or in the R&D scheme, remains
unchanged over the period. In this section, we consider dynamic subsidy schemes, where the amount of subsidy varies, and make a
comparative analysis of the effects on the EV market. The results are shown in Fig. 10.
Fig. 10 suggests that, though a static acquisition subsidy leads to a considerable increase in EV sales, a dynamic acquisition subsidy
can achieve a significant reduction in CO2 emissions at a much lower cost, owing to the decrease in the total subsidy expenditure.
However, the plots for the scenarios with static and dynamic R&D subsidies almost overlap. The effect on EV sales and efficiency of

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Y. Li et al. Transportation Research Part A 167 (2023) 103558

Fig. 10. Comparisons for simulation results under the dynamic and static subsidy schemes.

making the R&D subsidy dynamic is not as obvious as in the case of the acquisition subsidy. In general, the successful promotion of a
new product is inseparable from a large amount of monetary investment in the initial stage. As the technology matures, however, the
innovation cost is not very high, due to the accumulation of experience and knowledge, and technological innovation can help to
reduce the production cost of EVs. The market can achieve self-development even if government reduces its level of intervention. In
this situation, a dynamic subsidy scheme whereby the total subsidy expenditure decreases step by step, so as to increase its efficiency, is
a better choice for government.

5.3. Results under the fixed subsidy budget scenario

In order to promote the development of the EV industry, the Chinese government provides subsidies regardless of the total subsidy
expenditure, but such a scheme would be difficult to achieve for countries with tighter subsidy budget constraints. Therefore, in this
section, we examine the effects of various subsidy schemes with a fixed subsidy budget. According to the Government’s Notice on
Improving the Financial Subsidy Policy for the Promotion and Application of NEVs, issued by the Ministry of Finance (MF, 2020), the
annual limit on the number of vehicles subsidized is about 2 million. Given the unit acquisition subsidy is 13,000 RMB, the annual fixed
subsidy budget is 2 million*13000 = 26 billion RMB and the total subsidy budget during 2021–2030 is 260 billion RMB. We then
examine the effects of this budget limit on the total numbers of EVs and subsidy efficiency under the acquisition subsidy and R&D
subsidy schemes. Recall that in dynamic subsidy schemes, the subsidy amount is decreased by 10% every year. Then, with the same
total subsidy budgets during 2021–2030, the annual subsidy amount under the dynamic and the static subsidy schemes are different.
The simulation results under a fixed subsidy budget are shown in Table 4. From the flow diagram of the manufacturer module, the
R&D subsidy will improve the technology maturity, ultimately reduce the production cost and retail price of EV, thus help to improve
the attractiveness of EVs and promote the sales of EVs consequently. However, technology maturity will be accumulated over time,
which means that R&D subsidy in year/t will affect the retail price in year t. Therefore, the effect of R&D subsidy will not be shown
until 2022, which reflects the lag effect of R&D subsidy. It can be seen that with the fixed subsidy budget, the R&D subsidy scheme
achieves better outcomes than the acquisition subsidy scheme. When an R&D subsidy is offered, the total numbers of EVs in 2030 will
increase to 35.69 million under the dynamic scheme (35.63 million vehicles under the static one), which is about 18% more than that
under the no-subsidy scheme. Moreover, compared with the acquisition subsidy provided, the R&D subsidy can achieve about a 7%
increase with the same subsidy budget. Therefore, if the same subsidy budget is provided, we can conclude that the R&D subsidy is
more efficient than the acquisition subsidy in promoting the growth of EVs and achieving more reduction in CO2 emissions in a

Table 4
Simulation results under a fixed subsidy budget.
Time (Year) Total number of EVs (×106 vehicles)

Dynamic R&D subsidy Static R&D subsidy Dynamic acquisition subsidy Static acquisition subsidy No subsidy

2021 5.28 5.28 5.42 5.36 5.28

2022 7.77 7.72 7.21 7.11 6.89
2023 10.87 10.81 9.27 9.12 8.74
2024 14.06 13.99 11.51 11.32 10.74
2025 17.42 17.35 14.26 14.04 13.18
2026 20.95 20.88 17.55 17.35 15.89
2027 24.50 24.43 21.29 21.14 19.02
2028 28.10 28.03 25.12 25.08 22.56
2029 31.93 31.87 29.23 29.34 26.41
2030 35.69 35.63 33.28 33.58 30.24

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Y. Li et al. Transportation Research Part A 167 (2023) 103558

relatively long run.

5.4. Results under vehicle type-dependent usage scenario

In the basic model, we assume that consumers buy vehicles to meet the daily journey need (go to work, short-distance travel
demand, etc.), then no matter the consumer buy an EV or an ICV, the annual vehicle usage will be the same. That is, the vehicle usage is
not related to the chosen vehicle type. However, in practice, vehicle usage can be very likely responsive to the chosen vehicle type. For
example, since the electricity consumption cost per mileage of the EV is lower than the fuel oil consumption cost of the ICV, thus, when
consumers buy an EV, it might be possible that they will use more.
Therefore, in this section, we relax this assumption and assume that there is a multiplicative relation between the annual vehicle
usage of the ICV and the EV. We fix the Vehicle Kilometers of Travel (VKT) of an ICV to be 15000 km/year, then assign the coefficient of
the usage of EV to that of ICV to be 0.5, 1, 1.5 for robustness analysis, so as to reveal the impact of different vehicle usage when
switching car type. The results are showed in Figs. 11-13. Comparing to the results under the vehicle type-dependent usage scenario
and those of the vehicle type-independent usage scenario, we find the results regrading the comparison between the R&D subsidy and
acquisition subsidy are the same. That is, our results do not appear to be sensitive to the assumption that the vehicle usage is not related
to the chosen vehicle type.

6. Sensitivity analysis

The above results are obtained using real-world policies and data; consequently, each scenario shows only a single data point on a
range of potential subsidy levels. In this section, we take the results projected for 2030 as the baseline, and then conduct a sensitivity
analysis for increasing/decreasing the subsidy levels in the different subsidy schemes, so as to observe their impacts on the total
number of EVs and subsidy efficiency. Table 5 shows the results of this sensitivity analysis.
Table 5 reveals that, though increasing the subsidy level in the acquisition scheme increases the total number of EVs, it also requires
significantly greater financial expenditure, resulting in a sharp reduction in subsidy efficiency. For example, the subsidy level increased
by 80% leads to an 8.78% increase in the total number of EVs, and a 34.83% decrease in subsidy efficiency. But it is also worth noting
that a 20% reduction in the subsidy level can bring about a 15.02% increase in subsidy efficiency, with only a 2.59% decrease in total
number of EVs. Conversely, though an increase in the R&D subsidy increases the total number of EVs slowly, it is at a much lower cost,
and so does not lower the subsidy efficiency too much. For example, an 80% increase in the R&D subsidy leads to a 2.33% increase in
total number of EVs and only a 3.42% decrease in subsidy efficiency. The dynamic schemes produce similar results to the static
schemes.
The results of the sensitivity analysis further suggest that a sustainable subsidy policy to promote the EV industry is important, and
an increase in the total number of EVs is certainly important, but we do also need to consider the effectiveness of the subsidy
expenditure.
Moreover, the sensitivity analysis shows that it will be very difficult to achieve the Chinese government’s target of 62.4 million EVs
vehicles by 2030 if it relies solely on subsidy schemes. Therefore, besides government subsidy, we extend the sensitivity analysis to
other important factors that affect consumers’ purchasing behavior and demand for EVs. As shown in Table 6, the market side posts
significant impacts on the total number of EVs. Oil price has the largest influence on the total number of EVs among the four exogenous
factors, followed by electricity price. Compared with the top two factors, the effects of the number of charging points on the total
number of EVs are smaller. Such factors should be taken into account when designing government subsidy schemes.

7. Policy implications

The results have implications for policy makers regarding the design of policies to promote the production and purchase of EVs in
the context of climate change.
First, the results reveal that both the acquisition subsidy and the R&D subsidy can stimulate the development of the EV industry.
With the real-world policies, we find that the acquisition subsidy helps to stimulate the sales of EVs more quickly than the R&D subsidy,
but it is at the expense of huge subsidy expenditure. However, when the subsidy budget is fixed at a realistic level, the R&D subsidy is
more effective in promoting EV penetration and mitigating CO2 emissions, and is more efficient than the acquisition subsidy.
Therefore, when designing the subsidy scheme, the government should carefully consider the trade-off between the promoting of the
total number of EVs and the effectiveness of the subsidy expenditure.
Second, the results suggest that a dynamic R&D subsidy scheme outperforms a static one in terms of subsidy efficiency. This is due
to the “S”-type trend and lag effect of R&D investment, which develops slowly in the early stage, quickly in the middle stage, and then
tends to level out in the later stage. This result echoes the analytical finding of Rong et al. (2021) that a time-decreasing subsidy with a
termination deadline can accelerate the adoption of green technology. Therefore, at the initial stage, the government should imple­
ment a subsidy to promote the adoption of green technology innovation for the EV industry. Given the current situation where the R&D
investment for Chinese EV enterprises is generally lower than the international level, the government still needs to maintain or
strengthen its intervention in R&D (STW, 2021). Then, as the EV industry becomes more mature, the government can consider pro­
gressively scaling down or even terminating the subsidy scheme to decrease the total subsidy expenditure and increase subsidy ef­
ficiency. One important aspect of a R&D subsidy scheme is the need for monitoring whether the subsidy in the EV industry has been
spending on the related activities.

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Y. Li et al. Transportation Research Part A 167 (2023) 103558

Fig. 11. The annual sales of EVs under vehicle type-dependent usage scenario.

Fig. 12. Cumulative CO2 emission reductions under vehicle type-dependent usage scenario.

Fig. 13. Efficiency of different subsidy schemes under vehicle type-dependent usage scenario.

Third, the sensitivity analysis suggests that it will be very difficult for the Chinese government to achieve its EV target if it relies
solely on its subsidy schemes. What is more, many countries, including the United States, China and most European countries, have
decided to reduce or even terminate the subsidies on EVs over time, even though doing so may hinder the development of the EV
industry. Therefore, from the government’s standpoint, it is important for policy makers to recognize the importance of other factors
(the number of charging points, oil price and electricity price for example) that can affect consumer demand for EVs, and make in­
terventions accordingly.

8. Conclusions

This study uses a system dynamics model to explore the effects of different government subsidy schemes on the development of the
EV market and the mitigation of CO2 emissions. In this model, we incorporate the complex interactions between government,
manufacturers and consumers. Six scenarios are analyzed: no subsidy; static acquisition subsidy only; static R&D subsidy only; two-
way static subsidy; dynamic acquisition subsidy; and dynamic R&D subsidy. In addition, a sensitivity analysis is conducted to highlight
the impacts of different subsidy levels and other important factors. We find that both the acquisition subsidy and the R&D subsidy can
boost EV demand and reduce CO2 emissions. If there is no limit to the subsidy budget, the acquisition subsidy helps to stimulate the
sales of EVs more quickly and to a greater degree than the R&D subsidy in the short term, but at the expense of a huge absolute subsidy
expenditure. Conversely, the R&D subsidy is more effective in promoting EV penetration and more efficient in mitigating CO2

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Y. Li et al. Transportation Research Part A 167 (2023) 103558

Table 5
Sensitivity analysis.
Factor Indicator ¡80% ¡50% ¡20% Baseline þ20% þ50% þ80%

Static Acquisition subsidy Total number of EVs 30.94 31.80 32.71 33.58 34.23 35.26 36.53
− 7.86% − 5.30% − 2.59% 0% 1.94% 5.09% 8.78%
Subsidy efficiency 0.687 0.493 0.383 0.333 0.294 0.249 0.217
106.3% 48.05% 15.02% 0% − 11.71% − 25.22% − 34.83%
Static Total number of EVs 30.55 30.78 31.20 31.33 31.46 31.90 32.06
R&D subsidy − 2.49% − 1.75% − 0.41% 0% 0.41% 1.82% 2.33%
Subsidy efficiency 0.915 0.899 0.887 0.877 0.867 0.861 0.847
4.33% 2.51% 1.14% 0% − 1.14% − 1.82% − 3.42%
Dynamic Acquisition subsidy Total number of EVs 30.55 31.22 31.72 32.07 32.42 33.21 33.78
− 4.74% − 2.65% − 1.09% 0% 1.09% 3.55% 5.33%
Subsidy efficiency 0.770 0.617 0.513 0.461 0.416 0.368 0.327
67.03% 33.84% 11.28% 0% − 9.76% − 20.17% − 29.07%
Dynamic Total number of EVs 30.52 30.70 30.86 31.18 31.29 31.55 31.84
R&D subsidy − 2.12% − 1.54% − 0.99% 0% 0.35% 1.19% 2.12%
Subsidy efficiency 0.920 0.910 0.900 0.898 0.892 0.887 0.883
2.45% 1.34% 0.22% 0% − 0.67% − 1.12% − 1.67%

Note: The total numbers of EVs and the cumulative subsidy expenditure are calculated from 2010 to 2030. The values of subsidy expenditure from
2010 to 2020 are the historical real-world subsidy data, while from 2021 to 2030 are the simulation data.

Table 6
The effects of market-side factors on the total number of EVs in 2030.
Factor ¡80% ¡50% ¡20% Baseline þ20% þ50% þ80%

Charging point − 12.96% − 7.95% − 3.52% – +3.27% +7.38% +12.15%

Oil price –32.22% − 20.51% − 8.28% – +7.95% +20.68% +32.34%
Electricity price +18.84% +11.45% +4.36% – − 3.84% − 9.38% − 15.01%

emissions, in terms of expenditure. Moreover, the dynamic R&D subsidy scheme outperforms the static one in terms of subsidy effi­
ciency. However, total reliance on government subsidy to achieve long-term targets for the EV industry is impracticable, which calls
for other government interventions tailored to the important factors affecting consumers’ and manufacturers’ decision-making
behavior.
Despite the major contributions, there are several limitations that need to be further explored. First, in addition to the three most
important players (the government, manufacturers, and consumers) in the EV system, there are others too in the ecosystem (infra­
structure and energy suppliers in the industrial chain for example). Incorporating the decision-making behavior of these players would
help to tease out more comprehensive and interesting findings. Second, to focus on our research questions, we investigate the effect
only of government subsidy. Given the important role the EV industry plays in sustainable development, governments have imple­
mented many other interventions and supporting policies for promoting the development of EV industry. For example, access to bus
lane policy and the policy parallel managing corporate average fuel consumption and NEV credits in China, the individual income tax
exemption in the United States, and the value-added tax exemption in Norway and CO2 emission tax exemption in Germany and the
UK. Therefore, it is of great interest to examine what combination of interventions (all policies, not just subsidies) would achieve the
EV penetration goal with the least social burden.

CRediT authorship contribution statement

Yina Li: Conceptualization, Methodology, Supervision, Writing – review & editing, Funding acquisition. Chenchen Liang: Soft­
ware, Formal analysis, Writing – original draft. Fei Ye: Conceptualization, Methodology, Writing – review & editing, Funding
acquisition. Xiande Zhao: Conceptualization, Writing – review & editing.

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to
influence the work reported in this paper.

Acknowledgements

This work is supported by the Major program of National Social Science Foundation of China (22&ZD082), National Natural
Science Foundation of China (717710902, 72071080), Joint Funds of NSFC and Guangdong Province, China (U1901222), the Social
Science Foundation of Guangdong, China (GD22CGL24), and Guangdong Basic and Applied Basic Research Foundation, China
(2019A1515011768, 2021A1515011884).

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Appendix A. The equations and data of the system dynamics model

• Government module
1) CO2 emission of EV = CO2 emission of electricity*Electricity consumption*Mileage of EV; Kg
2) CO2 emission of electricity = -0.0129228*(Time-2009) + 0.870954; Kg/Kwh
3) CO2 emission of ICV = CO2 emission of fuel oil*Fuel oil consumption*Mileage of ICV/100; Kg
4) CO2 emission reduction = CO2 emission of ICV-CO2 emission of EV; Kg
5) Annual CO2 reduction = CO2 emission reduction*Total number of EV/1000;104 tons/Year
6) Cumulative CO2 emission reduction = INTEG (Annual CO2 reduction, 0); 104 tons
7) Total acquisition subsidy = Annual increment of EV* Acquisition subsidy; 108 RMB
8) Annual subsidy = Acquisition subsidy + Government R&D subsidy; 108 RMB/Year
9) Cumulative Government subsidy expenditure = INTEG (Annual subsidy, 17.6);108 RMB
• Manufacturer module
1) Enterprise R&D = Enterprise R&D intensity*Revenue; 108 RMB
2) R&D investment = Enterprise R&D + Government R&D subsidy; 108 RMB
3) Innovation capability = WITH LOOKUP (R&D investment, ([(0, 0) - (10000,0.8)], (0,0.02), (50, 0.04), (100, 0.05), (150, 0.08),
(200, 0.12), (250, 0.23), (300, 0.39), (350, 0.62), (400, 0.73), (450, 0.78), (500, 0.8), (10000, 0.8)); Dmnl
4) Technological innovation = Innovation capability*(1-Technology maturity); Dmnl
5) Technology maturity = INTEG (Technological innovation, 0.1); Dmnl
6) Annual production of EVs = Annual sales of EVs; 104 vehicles/Year
7) Cumulative production of EVs = INTEG (Annual production of EVs, 0.72); 104 vehicles
8) Learning effect of EV= (Cumulative production of EVs/0.72) ^ Log2Progress ratio; Dmnl
9) Progress ratio = IF THEN ELSE (Technology maturity>=0.9, 0.88, IF THEN ELSE (Technology maturity>=0.8, 0.89, IF THEN
ELSE (Technology maturity>=0.7, 0.9, IF THEN ELSE (Technology maturity>=0.3, 0.91, IF THEN ELSE (Technology
maturity>=0.2, 0.93, 0.95))))); Dmnl
10) Battery cost = Initial battery cost*Learning effect of EV; 104 RMB
11) Initial battery cost = 25; 104 RMB
12) Glider cost of EV = Initial glider cost of EV*Learning effect of EV; 104 RMB
13) Initial glider cost of EV = 9; 104 RMB
14) Base fixed cost of EV = 1; 104 RMB
15) Production cost of EV = Base fixed cost of EV + Battery cost + Glider cost; 104 RMB
16) Manufacturer’ suggested retail price of EV (MSRP of EV) = Production cost of EV*(1 + Price markup); 104 RMB
17) Revenue = Annual sales of EVs*MSRP of EV; 108 RMB
18) Annual production of ICVs = Annual sales of ICVs; 104 vehicles/Year
19) Cumulative production of ICVs = INTEG (Annual production of ICVs, 4574.91); 104 vehicles
20) Learning effect of ICV= (Cumulative production of ICV/4574.91) ^ (Log20.9); Dmnl
21) Internal combustion engine cost = Initial internal combustion engine cost*Learning effect of ICV; 104 RMB
22) Internal combustion engine cost = 4; 104 RMB
23) Glider cost of ICV = Initial glider cost of ICV*Learning effect of ICV; 104 RMB
24) Initial glider cost of ICV = 9; 104 RMB
25) Base fixed cost of ICV = 1.5; 104 RMB
26) Production cost of ICV = Base fixed cost of ICV + Internal combustion engine cost + Glider cost of ICV; 104 RMB
27) Manufacturer’ suggested retail price of ICV (MSRP of ICV) = Production cost of ICV*(1 + Price markup); 104 RMB

Consumer module

1) Life-cycle cost of EV = Purchase cost of EV + Operating cost of EV-Resale value of EV; 104 RMB
2) Purchase cost = MSRP of EV*(1 + Purchase tax policy) + Cost of vehicle license plate-Unit acquisition subsidy-Purchase re­
striction rescission; 104 RMB
3) Purchase tax policy = WITH LOOKUP (Time, ([(2010, 0) - (2030,0.1)], (2010, 0.1), (2014, 0.1), (2015,0), (2022,0), (2023,0.1),
(2030,0.1))); Dmnl
4) Cost of vehicle license plate = 5.1899; 104 RMB
5) Purchase restriction rescission = WITH LOOKUP (Time, ([(2010, 0) -(2030, 10)], (2010, 0), (2014,0), (2015,5.1899),
(2030,5.1899))); 104 RMB
6) Operating cost of EV= (Electricity consumption cost + Other cost) *EV lifetime-Other supporting policies; 104 RMB
7) Other cost = 1.04; 104 RMB/Year
8) Other supporting policies = Driving restriction rescission + Parking fee full exemption + Public charging fee full exemption +
Road privileges + Road tolls full exemption + V&V tax full exemption = WITH LOOKUP (Time, ([(2010, 0) -(2030, 10)],
(2010,0), (2014,0), (2015,11.151), (2030,11.151))); 104 RMB
9) Electricity consumption cost = Electricity price*Electricity consumption*Mileage of EV/10000; 104 RMB/Year
10) Electricity consumption = -0.017*LN(Time-2009) + 0.2; Kwh/Km

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Y. Li et al. Transportation Research Part A 167 (2023) 103558

11) Resale value of EV= (1-Depreciation rate of EV) ^ (15) * MSRP of EV; 104 RMB
12) Life-cycle cost of ICV = Purchase cost of ICV + Operating cost of ICV -Resale value of ICV; 104 RMB
13) Purchase cost of ICV = MSRP of ICV*(1 + Purchase tax rate) + Cost of vehicle license plate; 104 RMB
14) Operating cost of ICV= (Other cost + Oil consumption cost) * ICV lifetime; 104 RMB
15) Oil consumption cost = Fuel oil consumption*(Mileage of ICV/100) *Oil price/10000; 104 RMB/Year
16) Fuel oil consumption = 10*(Time-2009) ^ (-0.08); L/100Km
17) Oil price = RANDOM NORMAL (5.5, 8, 6.75, 0.685, 1); RMB/L
18) Resale value of ICV= (1-Depreciation rate of ICV) ^ (15) *MSRP of ICV; 104 RMB
19) LCC attractiveness = Life-cycle cost of ICV/Life-cycle cost of EV; Dmnl
20) Increment ratio = WITH LOOKUP (Time, ([(2010,0) -(2030,0.1)], (2010,0.01),

(2014,0.01), (2015, 0.1), (2019,0.1), (2020,0.01), (2030,0.01))); Dmnl.

21) Awareness increment = Environmental awareness*Increment ratio; Dmnl

22) Environmental awareness = INTEG (Awareness increment,1); Dmnl
23) Distance per charge = 120*LN (Time-2009) + 100; Km
24) Convenience of EV use = IF THEN ELSE (Distance per charge>=500, 0.8, IF THEN ELSE (Distance per charge>=400, 0.6, IF
THEN ELSE (Distance per charge>=300, 0.4, IF THEN ELSE (Distance per charge>=200, 0.2, 0.1)))); Dmnl
25) Newly-added charging points= ([(2010,0), (2030,40)], (2010,0), (2011, 0.2),(2012, 0.4), (2013, 0.6), (2014, 0.9), (2015, 2.7),
(2016, 10.1), (2017, 29), (2018, 33.7), (2019, 36.7), (2020,40), (2030,40))); 104 /Year
26) Total number of charging points = INTEG (Newly-added charging points, 0.1); 104
27) Commercial activity innovation= (1+α*Maturity of ICT) *the level of commercial innovation*Social network scale; Dmnl
28) α = 0.55; Dmnl (α is assigned to vary between 0 and 1, the results hold)
29) Maturity of ICT = 0.2; Dmnl (maturity of ICT is also assigned to 0.4,0.6,0.8,1, respectively, the results hold)
30) The level of commercial innovation = 0.25; Dmnl
31) Social network scale = EXP (Consumer’s preference for the commercial activity innovation *(1–1.5*(1-EV market propor­
tion))); Dmnl
32) Consumer’s preference for the commercial activity innovation = 0.5; Dmnl
33) Convenience of charging= (5.532e-008*Total number of charging points*10000) *(1 + Commercial activity innovation); Dmnl
34) Attribute attractiveness = Convenience of charging/3 + Convenience of EV use/3 + Technology maturity/3; Dmnl
35) Network externality = INTEG (gain-loss,0.001); Dmnl
36) Decay rate = EXP (-4*1/2/0.05*Total social exposure)/(1 + EXP (-4*1/2/0.05*Total social exposure)); Dmnl
37) Total social exposure = Marketing effectiveness + 0.25*EV market proportion* Network externality + 0.15* Network exter­
nality *(1-EV market proportion); Dmnl
38) Marketing effectiveness = WITH LOOKUP (Time, ([(2010,0) -(2030,10)], (2010,0.005), (2013,0.005), (2014,0.01),
(2030,0.01))); Dmnl
39) Annual sales of EVs = Total demand*Indicated market share of EV; 104 vehicles/Year
40) Total number of EVs = INTEG (Annual sales of EVs - EVs Scrappage, 0.72); 104 vehicles
41) EVs Scrappage = Scrapped rate of EV*Total number of EVs; 104 vehicles/Year
42) Annual sales of ICVs = Total demand*(1-Indicated market share of EV); 104 vehicles/Year
43) Total number of ICVs = INTEG (Annual sales of ICVs-ICVs Scrappage, 4574.91); 104 vehicles
44) ICVs Scrappage = Scrapped rate of vehicle*Total number of ICV; 104 vehicles/Year
45) Total demand = WITH LOOKUP (Time, ([(2010,0) -(2030,5000)], (2010,1844.6), (2011,1917.8),(2012,2061.9),
(2013,2455.7), (2014,2486), (2015,2476.2), (2016,2786.9), (2017,2956.7), (2018,2816.3), (2019,2551.5), (2020,2500),
(2021,2630), (2022,2724.1), (2023,2996.5),(2024,2966.6),(2025,3053.9),(2026,3118.6),(2027,3157.6),(2028,3168.1),
(2029,3147.7), (2030,3094.5))); 104 vehicles
46) EV market proportion = Total number of EVs/(Total number of EVs + Total number of ICVs); Dmnl

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