Breaking 'Chicken or Egg First' Dilemma : Optimizing Government Incentive Polices for Electric Vehicle Industry in China

As a disruptive technology, electric vehicles (EV) help tackle smoggy weather and to reduce the dependence on unsustainable oil imports, attracting great attention of China' government. Using China as a backdrop, this study examines how government incentive policies influence the adoption of electric vehicles (EV). A behavioral modeling, system dynamics (SD) modeling and behavioral experiments are triangulated to examine the adoption. The SD models are developed to analyze customer's adoption behaviors, using the results from the behavioral experiment on how various government incentive policies affect the acceptance rates of passenger EV. Both non-network externality (non-NE) model and the network externality (NE) model are tested with consideration of various policies regarding investment time and allocation structure of incentives. Seven common incentive policies are considered in the models, including infrastructure deployment, R&D investment, price subsidy, sales tax deduction, discounted parking fee, discounted charging fee and registration tax exemption.There are several important findings. First, the results suggest that governments should not ignore the network externality in their investment decisions. Second, investing more in the early period and with a decreasing rate in the planning period is a superior strategy for both non-NE and NE scenarios. Third, although both two essential incentives are important to EV adoption, more investment to IF is better than more investment to RD since IF is either an NE incentive or an essential one. Fourth, customers are more sensitive to non-monetary incentives, instead of monetary incentives with large amount of subsidy. Last, although China's government arranged RMB 100 billion during its 13th 5-year plan (2016-2020) to promote the EV industry, this budget is not sufficient to fully support EV adoptions in next ten years