When to invest in electric vehicles under dual credit policy: A real options approach

Author:

Liu Feng12,Tan Yingshuang1ORCID,Sarkar Sudipto2,Zhang Xueqing1,Huang Xingjun3

Affiliation:

1. School of Economics and Business Administration Chongqing University Chongqing 400040 China

2. DeGroote School of Business McMaster University Hamilton L8S 4M4 Canada

3. Department of Land Surveying and Geo‐Informatics The Hong Kong Polytechnic University Hung Hom, Kowloon Hong Kong China

Abstract

AbstractThis research aims to investigate traditional vehicle manufacturers' green technology investment theory under dual credit policy from the perspective of real options, overcoming earlier investigations of this issue that considered it only from a stability or single uncertainty perspective. An analytical real options model was first provided for traditional automaker investment. Then we solved the analytical solution for the electric vehicle investment threshold based on the uncertainty of credit price and fuel vehicle market scenarios. The optimal electric vehicle investment timing is demonstrated using numerical simulation. Results show that (1) when the fuel vehicle market demand falls to a certain level, automakers will choose to make electric vehicle investments regardless of how the credit price changes in the market; (2) the effect of volatility on the investment threshold depends on the covariance or correlation coefficient; (3) the numerical simulation results revealed that the credit price drift rate, risk‐free rate, correlation parameters, and electric vehicle production cost all have a positive impact on the electric vehicle investment region, whereas the drift rate of fuel vehicle and electric vehicle production cost have a negative impact. These results can be used to make theoretical conclusions about electric vehicle investments.

Funder

National Social Science Fund of China

Fundamental Research Funds for the Central Universities

Publisher

Wiley

Subject

Management of Technology and Innovation,Management Science and Operations Research,Strategy and Management,Business and International Management

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