Promoting the adoption of electric vehicles through private charging infrastructure: Should subsidies be for the builder or non-builder?

Abstract

To increase electric vehicle (EV) adoption, many governments subsidize EV buyers who build private charging infrastructure (PCI). However, this subsidy scheme is controversial because it is only available for the conditional consumer segment (CCS) that can build PCI, except for the unconditional consumer segment (UCS), which has a lower willingness-to-pay for EV. This raises the question as to, whether subsidizing the UCS could be more effective. In this study, we propose a Stackelberg game model to determine the government’s optimal subsidy scheme, for PCI builders or non-builders, when one EV automaker competes with one fuel vehicle (FV) automaker. The analysis finds that both subsidy schemes can increase EV adoption and consumer welfare, but have opposite effects on the pricing of EV and PCI. The government should subsidize the PCI non-builder when the CCS rate is lower than one threshold and the EV adoption target is higher than a second threshold. Otherwise, a subsidy scheme for PCI builder is optimal. When the fixed cost of EV is relatively high, the government should set the EV adoption target higher than one threshold to avoid a “Backbiting Effect” that lowers both profits of EV and FV automakers. In addition, in both subsidy schemes, when the CCS rate increases or the complementary performance of PCI improves, the government should counter-intuitively increase subsidies to achieve the EV adoption target in some cases. Our results highlight recommendations for governments on methods for implementing PCI subsidy schemes and provide pricing insights for automakers.