Promoting electric vehicles: Reducing charging inconvenience and price via station and consumer subsidies

Environmental and energy independence concerns lead to government subsidies for electric vehicles (EVs). Operational decisions for a government are (i) to incentivize EV ownership by a direct consumer subsidy, a station subsidy that reduces charging inconvenience, or by both subsidies; and (ii) to minimize subsidy expenditure or to maximize EV adoption level. We model the interactions between the government and the charging supplier as a Stackelberg game and study the optimal structure of subsidies by incorporating charging inconvenience. We prove that this inconvenience is decreasing convex in the number of stations. In the expenditure minimization case, the optimal policy depends on the government adoption target and the charging station construction cost. If the adoption target is below a threshold that depends on the construction cost, the government provides pure consumer subsidy or no subsidy; otherwise, a combination of consumer and station subsidies is optimal. As the construction cost increases, the charger builds fewer stations, regardless of the subsidy type. We establish that expenditure minimization and adoption maximization yield the same subsidy policy if the charging inconvenience is linear. In a real‐life case, we find numerically that a station subsidy alone is optimal if the construction cost is not low but the adoption target is low. Besides, a long driving range reduces the need for subsidies significantly if the construction cost is high, whereas a long charging time necessitates high expenditure allocated mostly to a station subsidy.