Rebates and tax credits might need a tweak to incentivize consumers to fully switch to electric vehicles – here’s what a new study found.
Electrek spoke with Brad Greenwood, professor of information systems and operations management at George Mason University’s School of Business, about his recent research, which found that EV subsidies rolled out in China – similar to the US’s new $7,500 EV tax credit – incentivized people to buy EVs as second vehicles, but they kept buying and driving gas cars as well.
Here’s what Dr. Greenwood found in his research about what subsidies need to do in order to get gas vehicles off the streets – and for drivers to switch to fully electric.
Electrek: You recently conducted a study on EV subsidies as incentives for people to switch from gas to electric. Can you tell us a bit about that?
Brad Greenwood: The goal of the paper was to examine how EV subsidies affect both EV markets and traditional vehicle markets. There’s a lot of evidence that financial subsidies can stimulate EV purchasing, but we don’t know how they influence the purchase of gas cars. To the extent that the stated goal is the cannibalization of the treated market, it’s important to examine this question.
Electrek: Did the incentives work, and how, exactly?
Brad Greenwood: Well, it depends. Like a lot of other studies, we see that EV sales rise sharply when financial subsidies are offered. This, of course, makes sense, because you’re essentially lowering the price.
The concern is that the market – that is, both EVs and gas cars – expands overall, and there’s no observed decrease in traditional vehicle purchasing. Instead, it looks like consumers are either buying an additional vehicle, or buying a vehicle when they otherwise would have relied on alternate transportation options.
Electrek: Is there a way for incentives to be more effective to get people to fully switch from gas to electric cars?
Brad Greenwood: What’s pretty striking is that we see that the impact of the subsidy is strongest in cities with really poor air quality. But consumers don’t react heterogeneously in cities with higher fuel prices. That’s surprising, because consumers are reacting to a monetary incentive – the subsidy – but they don’t react more when prices for operating a traditional vehicle are higher – that is, when there’s a real financial advantage to having the EV.
Electrek: What do you think would make subsidies more effective?
Brad Greenwood: That’s a matter of speculation. What appears to be critical, though, is mandating abandonment of a gas car when purchasing the EV – that is, the gas car needs to be traded in, at least in the emerging stage of the market. We’re obviously going to need a lot more research to substantiate the factors that increase or decrease the efficacy of subsidies, but that’s the direction we’re pointed in now.
Brad Greenwood is a professor of information systems and operations management at George Mason University’s School of Business with expertise regarding the consequences of innovation and the intersection of modernization, business, technology, and social issues.
Read more: This is where electric vehicle adoption is headed between 2022 and 2025
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