Who Should Be Subsidized to Promote Electric Vehicle Adoption

Electric vehicles (EVs) are superior to internal combustion engine-powered vehicles (ICVs) in limiting oil dependency and reducing carbon emissions. Governments worldwide have enacted various subsidy policies to promote EV adoption. In this paper, we focus on answering two related key questions—who should be subsidized, and through which channels should EVs be distributed to promote their adoption? We integrate the determination of subsidy beneficiaries and the selection of distribution channels that have often been considered separately. Our modeling also emphasizes consumers’ trade-off between EVs and ICVs, which is central to EV adoption but has largely been overlooked. We present a game model to identify optimal subsidy beneficiaries and advantageous distribution channels in an EV and ICV mixed supply chain. Our analysis reveals that: (a) the choice of optimal subsidy subject depends on the purpose of subsidy incentives and the interaction of various factors, including the subsidy influence coefficient and RD (b) subsidy is not necessarily effective in reducing consumer expenditure on EVs due to the encroachment of upstream enterprises; and (c) in most cases, the direct distribution channel for EVs is superior to the traditional retail channel that distributes both EVs and ICVs. Our findings present significant managerial insights for the design of subsidy mechanisms and the selection of distribution channels under various subsidy objectives in competitive supply chains.