Cap or No Cap? What Can Governments Do to Promote EV Sales?

TL;DR

This study analyzes the impact of federal EV tax subsidies on sales, finding that subsidy reductions significantly decrease EV sales, highlighting the importance of government incentives in promoting electric vehicle adoption.

Contribution

The paper employs a difference-in-differences approach to quantify the effect of federal EV subsidies on sales, providing empirical evidence of policy effectiveness.

Findings

EV sales declined by 43.2% after subsidy reduction

Federal incentives effectively promote EV adoption

Regression results support subsidy impact despite statistical insignificance

Abstract

This paper examines the effect of the federal EV income tax subsidy on EV sales. I find that reduction of the federal subsidy caused sales to decline by $43.2 \%$. To arrive at this result, I employ historical time series data from the Department of Energy Alternative Fuels Data Center. Using the fact that the subsidy is available only for firms with fewer than 200,000 cumulative EV sales, I separate EV models into two groups. The treatment group consists of models receiving the full subsidy, and the control group consists of models receiving the reduced subsidy. This allows for a difference in differences (DiD) model structure. To examine the robustness of the results, I conduct regression analyses. Due to a relatively small sample size, the regression coefficients lack statistical significance. Above all, my results suggest that federal incentives designed to promote EV consumption are successful in their objectives.