How does differentiated subsidy adjustment influence new energy vehicle sales?

Abstract

Since 2016, China has implemented subsidy phaseout policy aimed at reducing the dependence of new energy vehicles (NEVs) on subsidy and stimulating the endogenous power of the NEV industry. To avoid market fluctuations, the government introduced differentiated subsidy policy that ties subsidy amounts to driving mileage. This study attempts to investigate the effect of differentiated subsidy adjustment once the purchase subsidy scheme is phased out in China. We employed a difference-in-difference approach to investigate the effects of differentiated subsidy policies on NEV sales at the provincial level in 2018. Our findings demonstrate that differentiated subsidy adjustment has a significant negative effect on low-mileage NEVs but a significant positive effect on high-mileage NEVs. We also explore the regional impact of differentiated subsidy policies, indicating that economic disparities significantly influences NEV adoption. Customers from wealthier areas tend to purchase high-end NEVs with the longest mileage. Furthermore, the results indicate that sedan vehicles are more responsive to differentiated subsidy adjustment compared to Sports Utility Vehicles. Overall, our research highlights the effectivenessof differentiated subsidy policy. These findings suggest that the government can promote NEV industry upgrading by implementing targeted, differentiated subsidy policy.