in China in the form of joint ventures (JVs) partnered with domestic automakers.<sup>5</sup> JVs take up about two-thirds of the market and dominate the luxury segment while imports account for only about 5 percent of the market. The size of the EV market could benefit the global trend of transportation electrification by offering a fertile trial ground of new technologies and reducing the cost of batteries, the cost component critical to the transition from ICEVs to EVs.

To quantify the impacts and cost-effectiveness of different driving forces on consumer EV demand, we have compiled to our knowledge the most comprehensive data on China’s EV market including quarterly EV sales by vehicle trim by city from 2015 to 2018, vehicle attributes by trim, information on battery suppliers, detailed information on public charging stations, consumer subsidies and other policies aimed at promoting consumer adoption of EVs from central and local governments, and social and economic variables at the city level. We use a linear regression framework to estimate EV demand among individual/household buyers with a focus on consumer price response, non-financial policies, and charging infrastructure availability.<sup>6</sup> There are three key identification challenges. First, the price variable, crucial to estimating consumer response to subsidies, could be endogenous due to unobserved product attributes, i.e., attributes that consumers value but are unobserved in the data (e.g., product quality and safety performance). As documented in previous studies, unobserved product attributes tend to bias the price coefficient estimates toward zero in demand estimation (Berry et al., 1995), leading to under-estimation of consumer response to consumer subsidies. The second challenge is unobserved demand shocks that could be correlated with government policies (subsidies and other policies) and at the same time affect consumer EV demand. For example, if central and local governments design policies as a response to negative demand shocks, we would under-estimate the effectiveness of the policies. The third challenge is due to the simultaneity between consumer EV demand and charging station investment, which could render the charging infrastructure variable endogenous. The simultaneity arises because of the fact that the EV market can be characterized as a two-sided market (EVs and charging stations) with indirect network effects. The decision of consumer adoption depends on the size of charging infrastructure and the decision

> 5The joint-venture requirement for foreign automakers is part of the long-term “technology-for-market” strategy by the Chinese government. Amid the recent trade war between China and the United States, the Chinese government has promised to lift the requirement for the auto industry from 2021. With a special permission, Tesla built its fully owned gigafactory in Shanghai with a capacity of 250,000 units per year and it has started to produce Model 3 in December 2019.

> 6Individual buyers account for about 65% of total EV sales during our data period. Institutional buyers (e.g., government agencies, companies and taxi fleets) are subject to different subsidy policies and their decision making process could be subject to different considerations.

3