Quantifying the Welfare Effects of Electric Vehicle Subsidies: Evidence from China

We evaluate the welfare effects of China’s electric vehicle (EV) subsidy policy from 2015 to 2019. Our findings indicate that the subsidies primarily transfer funds from the government to consumers, with car manufacturers capturing only a small share. This outcome is driven by EV demand curvatures exceeding one and significant heterogeneity in consumer price sensitivities. We further decompose the welfare effects into two key components: the baseline subsidy based on driving range and the subsidy adjustment coefficients targeting technological innovations. While the latter intensifies competition among EVs, reducing manufacturer profits, it also enhances environmental benefits by lowering emissions. Finally, our results underscore the need to account for nonenvironmental externalities—such as traffic accidents and congestion—as well as the assumptions regarding the transportation mode underlying the outside choice in welfare analysis. Varying these assumptions can yield opposing conclusions on the overall social welfare effect.