Product development strategies of electric vehicle manufacturers: Considering government subsidy and consumers' environmental preferences

Governments worldwide have promulgated greenness-based electric vehicle subsidy (GEVS) policies to encourage electric vehicle (EV) manufacturers to develop products with higher greenness (i.e., energy saving and emission reduction performance). Normally a GEVS policy would set a subsidy threshold to ensure that only EVs whose greenness meets the subsidy threshold requirement receive the subsidy. By considering consumers' environmental preferences (CEPs), this paper develops game-theoretical models to investigate the impacts of the GEVS policy on EV manufacturers' product development strategies and profits, as well as on the environment. The findings show that the product development strategies highly depend on subsidy thresholds, and three equilibrium product development strategies are obtained in equilibrium. Besides, it is intuitive to find that, in the absence of CEP, a low subsidy threshold can increase both EV manufacturers' profits and reduce the environmental impact of EVs simultaneously. However, the opposite results emerge when consumers have strong environmental preferences; that is, a low subsidy threshold would hamper both EV manufacturers' profits, and meanwhile increase EVs' environmental impacts. Surprisingly, as CEP increases, the GEVS policy is more likely to reduce EV manufacturers' profits and increase EVs' environmental impacts.