How long can subsidies drive EV adoption?

Rising EV sales are forcing governments to rethink how hybrid and electric mobility is supported moving forward. By Christopher Dyer

The increasing popularity of electric vehicles (EVs) has raised questions around the use of government subsidies, which in recent years have reduced initial purchase costs for consumers. Additional legislation such as tax breaks and regional regulations are also being introduced by local municipalities but remain patchy at best.

Special report: Improving electric vehicle profitability

While early adopters led initial growth, subsidies and legislation now provide the greatest incentive for drivers to go EV. A 2021 McKinsey study found that EV adoption, on a country-by-country basis, has been primarily dependent on the breadth and generosity of measures governments have been willing to provide. For instance, China was one of the most generous countries in the early 2010s, when EVs first began hitting the mass market. The study found that over 50% of respondents were motivated to adopt EVs as a direct result of the measures introduced by the Chinese government. Initially, these included a government grant for 50% of an EV’s label price. While subsidies have been significantly reduced over the last few years, the study points to government support as the primary cause of China’s early lead on EVs.

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