Free-ridership in subsidies for company- and private electric vehicles

Abstract

Consumer subsidies are commonly employed to incentivize the purchase of battery electric vehicles (BEVs), but free-ridership potentially undermines their effectiveness. The present study investigates BEV subsidies in Germany, distinguishing their effect between company- and private cars. Drawing on a panel of high-resolution car registration data, we use the estimates from a Poisson pseudo-maximum likelihood model to predict BEV registrations in the absence of the subsidy. We calculate aggregate free-rider rates of 56.5% for private cars and 87.1% for company cars. We further find that the cost of the subsidy per induced BEV among private consumers is €9,718, while it is €30,780 among companies. Overall, the estimates suggest that the subsidy is considerably less cost effective among company cars, which comprise 55% of new BEV sales. An auxiliary analysis that recognizes the possibility of differential pass-through rates of the subsidy over time confirms this conclusion.

Topics & Concepts