Battery R&D decision of electric vehicle manufacturer considering government subsidy

Abstract

PurposeIn this paper, the authors aim to consider the manufacturer's battery research and development (R&D) decision under subsidy. The supply chain includes two manufacturers, which produce substitutable electric vehicles, and a battery supplier. One of the manufacturers can choose to develop batteries or buy batteries. The authors assume consumers do not have enough trust in the manufacturer-made battery.Design/methodology/approachStackelberg game is made use of to study the battery R&D strategy of the manufacturer under the incentive of government subsidies. This paper makes a comparative analysis on six situations, then the authors get some conclusions and give some managerial insights.FindingsThe results show that subsidy strategies do not necessarily reduce actual payments when the manufacturer does not research and develop batteries. The retail prices and actual payments are closely related to the substitutability and total cost advantage of product. The authors also find consumer trust positively affects the demand of the electric vehicles using the manufacturer-made batteries and then affects the manufacturer's battery R&D decision. When consumers have low trust in manufacturer-made battery, subsidy can bring greater sales and make R&D more profitable than procurement, so that the manufacturer chooses R&D. This study's findings also suggest consumer subsidy is always better for the government.Originality/valueDistinguished from previous studies, the authors discuss the decision-making of component research, and introduce various government subsidy strategies and consumer trust to study their roles in the manufacturer's battery R&D choice.