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Recent Developments in the Electric Vehicle Market

Paper Session

Saturday, Jan. 4, 2025 2:30 PM - 4:30 PM (PST)

Hilton San Francisco Union Square, Union Square 3 and 4
Hosted By: Econometric Society
  • Chair: David Rapson, University of California-Davis

Drive Down the Cost: Learning by Doing and Government Policy in the Global Electric Vehicle Battery Industry

Panle Jia Barwick
,
University of Wisconsin-Madison and NBER
Hyuksoo Kwon
,
University of Chicago
Shanjun Li
,
Cornell University
Nahim Bin Zahur
,
Queen's University

Abstract

The global battery industry has achieved significant cost savings: electric vehicle (EV) battery costs have dropped by more than 90% over the past decade. This study assesses the extent to which this sharp decline in lithium-ion battery prices is attributable to learning-by-doing in battery production, and quantifies the impact of two types of government policies (consumer subsidies and domestic content requirements) on learning and industry dynamics. Our analysis
utilizes rich data consisting of model-level sales, prices, and attributes of EVs for 13 top EV countries, and information on battery suppliers and characteristics. We estimate a structural model of the global EV industry, accounting for consumer vehicle choices, EV makers’ pricing decisions, and bilateral bargaining between EV makers and battery suppliers over battery prices. Preliminary estimates suggest a learning rate of 18%. Learning-by-doing greatly magnified the impact of consumer subsidies on EV adoption. We then conduct simulations to examine the impacts of domestic content requirements, a strategy adopted by China and more recently the US. Our results suggest that China’s whitelist policy, which required automakers to use domestically produced batteries to receive EV subsidies, significantly increased the market share of Chinese battery suppliers mostly at the expense of South Korean suppliers.

Industrial Policies for Multi-Stage Production: The Battle for Battery-Powered Vehicles

Keith Head
,
University of British Columbia
Thierry Mayer
,
Sciences Po
Marc Melitz
,
Harvard University
Chenying Yang
,
Singapore Management University

Abstract

Many countries have set ambitious targets for transitioning away from fossil fuels. The plans generally involve switching from combustion engines to electric vehicles (EVs). As batteries constitute around 40% of the cost of EVs, firms need to establish low-cost battery supply chains in order to make EVs attractive to consumers. At the same time, governments increasingly use tax and subsidy schemes to induce firms to locate more stages of the supply chain within their jurisdictions. We specify a multi-stage supply chain for EVs from battery cell production to vehicle distribution. Each car producer selects where to open facilities at each stage considering production costs, transport costs, tariffs and subsidies. This is a difficult combinatorial choice problem, but we leverage a mixed integer linear program formulation which can be solved in under a minute for a single firm.
We estimate the parameters of our model--which include the variable production costs and fixed plant/model activation costs--using observed sourcing decisions for all production stages over the period 2015 to 2022.
The next step is a set of counterfactuals that compute how policy interventions affect the final pattern of production and trade in this sector. Ultimately, we plan to use the model to quantify the impact of competing industrial policies on global CO2 emissions.

The Effects of “Buy American”: Electric Vehicles and the Inflation Reduction Act

Hunt Allcott
,
Stanford University
Joseph S. Shapiro
,
University of California-Berkeley
Felix Tintelnot
,
University of Chicago

Abstract

We study electric vehicle (EV) tax credits in the US Inflation Reduction Act (IRA), the largest
climate policy in US history, with three goals. First, we provide the first ex-post microeconomic
welfare analysis of this central component of the IRA. Event studies around changes in eligibility for EV tax credits show credits were largely passed-through to consumers. Additionally,
domestic content restrictions on tax credits for purchased vehicles have driven enormous shifts
to leasing. Our equilibrium model shows that compared to pre-IRA policy, IRA EV credits generated $1.87 of US benefits per dollar spent in 2023, at taxpayer cost of $32,000 per additional
EV sold. Compared to scenarios with no EV credits, however, the IRA EV credits created only
$1.02 of benefits per dollar of government spending. Second, we characterize the gains from
policies targeting heterogeneity in externalities across vehicles. We find that relative to uniform
credits, differentiating credits across EVs according to their heterogeneous externalities would
substantially increase policy benefits. Third, we quantify tradeoffs in the IRA EV credits between foreign and domestic welfare and between trade and the environment. We find that the
IRA EV credits benefit the environment but undermine trade, since they decrease global carbon emissions but use profit shifting to decrease foreign producer surplus. A controversial IRA
loophole that removes domestic content restrictions on tax credits for EV leases has negative
domestic benefits.

IRA Tax Credit for Used Electric Vehicles

Hyuksoo Kwon
,
University of Chicago
Hunt Allcott
,
Stanford University
Tess Snyder
,
Stanford University

Abstract

The Inflation Reduction Act (IRA) provides tax credits for purchasing used electric vehicles (EVs), aiming to address concerns that new EV tax credits predominantly benefit wealthier buyers. Our analysis begins with an estimation of the pass-through of these used EV tax credits, employing quasi-experimental methods on confidential microdata of transaction prices from auto dealerships. Event study estimates reveal little evidence of changes in used EV prices after the IRA was enacted and the tax credits became available, suggesting that the economic incidence falls primarily on EV buyers. However, we find evidence of bunching in transaction prices below the $25,000 price threshold, implying some incidence on sellers. Furthermore, we assess the efficiency and distributional impacts of the tax credits using a structural model for both new and used vehicle markets. This dynamic model tracks the proportion of vehicles that have not yet claimed the one-time transaction credit, which diverges from standard dynamic models that depend on stationarity assumptions. Our model integrates automakers’ pricing strategies, consumers’ vehicle choices, car owners’ scrappage decisions, and the price premium for individual vehicles that have not yet claimed the credit. Using this model, we simulate the outcomes of the used EV tax credits and compare these with other policy interventions, such as means-tested new EV subsidies that are also designed to equitably increase electric vehicle sales.

Discussant(s)
Gautam Gowrisankaran
,
University of Columbia
Rowan Shi
,
Toronto Metropolitan University
Erich Muehlegger
,
University of California-Davis
Thomas Wollmann
,
University of Chicago
JEL Classifications
  • F1 - Trade
  • L62 - Automobiles; Other Transportation Equipment; Related Parts and Equipment