From combustion to electric: Unveiling the forces behind vehicle substitution

Many countries are promoting electric vehicles (EVs) to accelerate industrial growth, environmental sustainability, and energy conservation, yet insufficient attention has been given to deliberately phasing out internal combustion engine vehicles (ICEVs). Addressing this gap, we analyze the substitution effect between EVs and ICEVs in China, focusing on how gasoline price fluctuations shape consumer choices and how this effect is moderated by policies, infrastructure, and natural conditions. Using panel data from 100 cities (2015–2020), we find significant substitution effects: a 10 % rise in gasoline prices decreases ICEV sales by roughly 2.9 % while boosting EV sales by 2.0 %. Notably, policies that raise the cost or difficulty of owning ICEVs, such as license-plate controls, where new ICEVs require lotteries or costly auctions while EVs are exempt, significantly amplify this substitution and outperform direct subsidies by reshaping consumer decision-making at lower fiscal costs. Meanwhile, supporting infrastructure and advancements in battery technologies significantly enhance EV competitiveness by alleviating consumer concerns such as range anxiety. However, natural environmental factors (climate and terrain) equally affect EV and ICEV adoption, indicating minimal differential impact. Overall, our results show that successful EV transitions depend not just on promoting EV adoption but on making ICEVs less attractive, while simultaneously building the infrastructure that makes EVs more convenient.