Optimal government policy-making for the electric vehicle adoption using the total cost of ownership under the budget constraint

Purchase subsidy is one of the most applied policies for electric vehicle adoption, which reduces the initial purchasing cost while imposing high expenses on governments. Although the purchasing price of the electric vehicle is higher than that of the fuel one, the lower operational costs of the former may compensate for the difference between vehicles' prices during the ownership period. In this way, governments can further persuade customers to purchase electric vehicles by adopting policies that make more reductions in operational costs, in addition to the purchase subsidy. This study optimizes the government policy-making in an electric-and-fuel automotive (i.e., passenger cars) market through designing a Stackelberg game model under the government budget constraint. Three subsidy scenarios are formulated: I) the purchase subsidy, II) the electricity subsidy, and III) the simultaneous purchase and electricity subsidies. Automotive manufacturers optimize their vehicles' selling prices following optimal government policy-making. A customer choice model is designed based on the total cost of ownership for vehicles with a random mileage and a new customer acceptance level parameter. Results lead to optimal subsidy plans for the government under various budget levels. When the available budget is very low, the electricity subsidy is the dominant policy, except for high customer acceptance levels and low fuel prices. The purchase subsidy is the dominant policy for low customer acceptance levels when low budgets are available. The government should subsidize both purchase and electricity costs in more than 50 % of possible situations concerning various customer acceptance levels and fuel prices. When the government adopts both types of subsidies, more than 70 % of the budget should be assigned to the purchase subsidy in more than 50 % of possible situations.