Entry mode selection for a new entrant of the electric vehicle automaker

• We study the optimal reverse channel selection for a new entrant automaker. • The fixed cost of spent power battery treatment affects a new entrant’s selection. • The government and the incumbent expect the new entrant’s different selection. • Government’s one time fixed cost subsidy has indirect effect on social welfare. • Government’s one time fixed cost subsidy does not always improve social welfare. Firms are increasingly joining the electric vehicle industry and facing the prospect of how to recycle spent power batteries. This study considers two competing automakers, the incumbent and the new entrant. The incumbent has a stable forward (reverse) channel structure. The new entrant has a forward channel structure different from the incumbent’s and, consequently, needs to decide which reverse channel structure to adopt; the two primary choices are a traditional 3P-recycler or an emerging co-recycler. We find that both the fixed cost of spent power battery treatment and the government’s one-time fixed cost subsidy will affect which reverse channel structure the new entrant will select. Interestingly, our results disclose that a high fixed cost of spent power battery treatment does not necessarily worsen a firm’s profit, but social welfare decreases in the fixed cost. Moreover, we find that the government’s one-time fixed cost subsidy has no direct effect on consumer surplus or social welfare, but it can affect consumer surplus or social welfare by influencing the new entrant’s reverse channel selection. Therefore, the government would like to consider a one-time fixed cost subsidy policy to encourage new entrants to select a co-recycler as the reverse channel in the presence of a high fixed cost. However, in the presence of a low fixed cost, the government does not need to subsidize the new entrant for the fixed cost. The analysis yields insights into how drivers influence the new entrant’s selection of strategies in a competitive environment.