Heterogeneous Diffusion of Electric Vehicles in China: Demand, Learning, Product Entry, and the Incidence of Industrial Policy

Yu; Hao; Jinge Li

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arXiv · 2606.27924

Heterogeneous Diffusion of Electric Vehicles in China: Demand, Learning, Product Entry, and the Incidence of Industrial Policy

Yu·Hao·Jinge Li

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Abstract

China's electric-vehicle (EV) sales share rose from about 1% in 2015 to roughly 45% in 2024. We evaluate this technology transition with an equilibrium differentiated-products model of the Chinese auto market, and quantify both its attribution and its welfare and reallocation consequences. Every yuan of 2024 EV subsidy delivered about 3.38 yuan of private surplus, but this surplus accrued asymmetrically. Per-capita consumer-surplus loss from subsidy removal is about five times larger in Tier 1 than in the Rest tier; about half of the aggregate welfare loss operates through indirect Wright's-law learning rather than the direct cash transfer; and EV-native firms (BYD, Tesla, New Forces) retain 16-27% of their 2024 EV business under subsidy removal while traditional state-owned manufacturers retain only 11%. A Shapley decomposition into six channels -- Quality, Variety, Battery, Subsidy, Residual, and Market -- attributes the historical 2015-2024 rise primarily to product-quality gains (+45.49%), choice-set expansion (+14.81%), and battery-cost decline (+8.20%). The Subsidy block is negative (-13.63%) because direct purchase subsidies were phased down, not because subsidies reduce demand: a separate counterfactual that removes the 2024 subsidy entirely lowers EV share by 23-33%.

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Yu, Hao, Jinge Li. 2026-06-26. Heterogeneous Diffusion of Electric Vehicles in China: Demand, Learning, Product Entry, and the Incidence of Industrial Policy. https://arxiv.org/abs/2606.27924

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