Subsidies, charging infrastructure, and the promotion of electric vehicles

In this study, we investigated the mechanisms through which subsidies influence the role of charging infrastructure (CI) and, in turn, how they affect electric vehicle (EV) adoption. Using monthly panel data from 31 provinces in China and a location-distribution-based instrumental variable, we found that EV subsidies enhance the positive impact of CI and generate larger indirect network effects (INEs), that is, the degree to which EV adoption increases with the expansion of CI. This leads to multiplier effects on EV promotion in provinces with EV subsidies and spillover effects in provinces without such subsidies. However, subsidies for CI are less efficient than EV subsidies, as they tend to reduce INEs. This negative impact becomes more pronounced when both EV and CI subsidies are implemented simultaneously. Ignoring these underlying mechanisms may lead to biased forecasts of EV sales. Based on these findings, we provide recommendations for policy makers and managers.