Moving from subsidy stimulation to endogenous development: A system dynamics analysis of China's NEVs in the post-subsidy era

Development in new energy vehicles (NEVs) has been playing a critical role in carbon emission reduction and air pollution control. In recent years, China has made substantial progress in NEVs through purchase subsidies. However, financial subsidy has come under criticism for its unsustainability. The fact that Chinese government has gradually reduced the subsidies suggests that NEVs will be probably entering a post-subsidy era. It makes sense to seek for an alternative approach to boosting the NEV industry. By comparing the supply and demand sides, this study constructed a endogenous development diamond model to evaluate the overall effects of multiple factors that relate to China's NEVs. Our research demonstrates that, in the post-subsidy era, the transition of NEVs from subsidy stimulation to endogenous development will be depending on various interacting factors, namely, basic resources, demand conditions, supporting measures, and model innovations. Amongst the supporting measures are more prominent than the other primary factors, whereas technological innovation has the most positive effect on the promotion of NEVs in second-level factors. Our empirical analysis shows that NEV subsidy reduction is feasible because there have been alternative policy tools to replace the subsidy. Policymakers should focus on the synergies of various policy tools.

Automated summary

Development in new energy vehicles (NEVs) has been crucial for reducing carbon emissions and controlling air pollution in China. Despite substantial progress achieved through purchase subsidies, the government has gradually decreased financial support, indicating a transition towards a post-subsidy era for NEVs. Supporting measures and technological innovation are key factors for promoting NEV development in the absence of subsidies.