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Industrial Policies for Multi-Stage Production: The Battle for Battery-Powered Vehicles

Author

Listed:
  • Keith Head
  • Thierry Mayer
  • Marc Melitz
  • Chenying Yang

Abstract

We model a multi-stage supply chain for EVs from battery production to vehicle distribution. Given industrial policies, firms select where to open facilities at each stage. This is a difficult combinatorial choice problem that we solve with a fast mixed integer linear programming formulation. We estimate the variable and fixed costs parameters using SMM. Counterfactual simulations reveal a tension between boosting EV adoption and promoting domestic supply chains. Due to increasing returns, even unconditional subsidies raise the number of factories in the subsidizing region—by about 16% for EVs and 7% for cells in North America, and even more in Europe. Theoretically, local assembly requirements can push down delivered marginal costs relative to unconditional subsidies. Empirically, local content requirements quadruple the expansion of cell factories in America, but they drive up costs and reduce subsidy uptake, undoing more than half of the EV adoption stimulus coming from pure buyer subsidies.

Suggested Citation

  • Keith Head & Thierry Mayer & Marc Melitz & Chenying Yang, 2026. "Industrial Policies for Multi-Stage Production: The Battle for Battery-Powered Vehicles," NBER Working Papers 34884, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34884
    Note: ITI
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    Cited by:

    1. Robert J. R. Eliott & Gavin D. J. Harper & Viet Nguyen-Tien, 2026. "The economics of the electric vehicle transition: demand, supply chains, and innovation," CEP Discussion Papers dp2164, Centre for Economic Performance, LSE.

    More about this item

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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