Local subsidies drive electric vehicle adoption: lessons from China

26 May 2025

Dr Mengfei Jiang and colleagues explore what the Chinese experience can teach us about the role of local subsidies in driving the adoption of electric vehicles.

Electricity charging cable plugged into an electric vehicle

Subsidies have been a powerful tool in the global push for electric vehicle (EV) adoption, but not all subsidies are created equal. While some drive rapid market expansion, others fail to deliver the expected impact. So, what makes a subsidy effective? And how do different implementation strategies influence EV uptake?

In the new study, Dr Mengfei Jiang, Visiting PhD Candidate Xiaoming Hu, and co-author Prof Xiang Zhang (Beijing Institute of Technology) explore these questions using data from 132 Chinese cities—one of the world’s largest and fastest-growing EV markets. Their findings offer key insights into how local governments can design smarter policies to accelerate the transition to electric mobility.

Municipal-level subsidies are the most effective

Governments at various levels—municipal, provincial, and national—offer financial incentives to encourage EV adoption. But not all subsidies have the same impact. This study finds that municipal-level subsidies are the most effective, significantly outperforming both provincial and jointly financed subsidies. Specifically, a 10% increase in municipal subsidies (relative to national subsidies) leads to around 1,000 additional EVs being adopted—considerably more than similar increases in provincial or jointly financed subsidies. This suggests that local governments have a crucial role in driving EV adoption, as their subsidies are more directly tied to local market conditions and consumer behaviour.

Policy stability is important to EV adoption

One common concern with EV subsidies is policy uncertainty—will subsidies be available long enough for consumers and businesses to plan around them? Interestingly, the study finds that retroactive subsidies—those announced after the policy period—do not significantly hinder EV adoption. This suggests that as long as subsidies are expected and credible, a slight delay in implementation does not deter consumers from purchasing EVs. This challenges conventional thinking that subsidy effectiveness is tied strictly to timely announcements and underscores the importance of policy stability over rigid timelines.

Getting subsidy design right is critical to worldwide efforts to increase sustainable transport

As countries worldwide ramp up efforts to cut emissions and transition to sustainable transport, getting subsidy design right is critical. This study provides empirical evidence to guide policymakers, ensuring that public funds are deployed effectively to drive meaningful decarbonisation in the transport sector.