Stock market reaction to new energy vehicle industry development plan: an event study in China

ABSTRACT

The targets of energy conservation, decarbonization, and industry reinvigoration have significantly influenced the design of China’s new energy vehicle (NEV) industrial policies and nationwide electrification. As a monumental policy framework for energy transition in transportation sector, the NEV industry development plan plays an influential role in promoting cleantech diffusion and enhancing NEV competitiveness. This study employs an event study method to investigate the stock market reaction to the NEV plan shocks. The NEV plan announced in 2020 receives a markedly positive stock price effect of 3.72% in the 6-day event window. Heterogeneity tests on subsamples indicate that state-backed entities exhibit a similar effect to the total sample, while the automotive manufacturing class and original equipment manufacturers see a significantly higher market value gain of 6.56% and 13.34%, respectively. However, battery manufacturers, as one of the key participants in the NEV value chain, experience an insignificant stock price effect. This study documents the financial consequences of clean energy policies specific to the emission-intensive automotive manufacturing sector, highlights the effectiveness of government-to-investor signalling in a cleantech diffusion context, and reveals the implications to other economies seeking to deploy clean transport and enhance environmental sustainability.

KEY POLICY INSIGHTS

• The national NEV industry development plan aiming at the energy transition of the transportation sector can incur outperformance of NEV stocks in the financial market.

• Different stock market performances between NEV plans manifest investor preference for market-oriented industry policies.

• The long-term policy framework for green industry transition can send positive signals to investors, guide capital reallocation, and direct investment flows into key financial assets.

• The implications from the Chinese market offer valuable insights for other countries in formulating concrete industry planning, transition agendas, and binding targets for climate change mitigation.

KEYWORDS:

• Industry development plan
• new energy vehicles
• clean energy
• stock market reaction

Acknowledgements

We are grateful to the editors of Climate Policy and to three anonymous reviewers for their helpful comments on a previous version of this manuscript. We would like to give special acknowledgement to Vinod Singhal and Sebastian Müller for their valuable suggestions. Any errors remain our responsibility.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 EVs here refer to plug-in electric vehicles that can be recharged using external electricity power.

2 NEVs in this study refer to EVs due to their dominance, while fuel cell electric vehicles, another NEV type, have yet to be widely commercialized.

3 The State Council is the highest decision-making authority and the executive body of the supreme organ of state power in China, equivalent to the cabinet in some other countries (Zhang & Qin, 2018).

4 The other national policy is the Guidance on Accelerating the Promotion and Application of New Energy Vehicles, announced by the State Council on Monday, July 21, 2014. It is not included in the analysis because it served as supplementary guidance within the NEVP2012 (Source: http://www.gov.cn/zhengce/xxgk/).

5 To address this concern further, the authors apply a PSM-DID test on the two plans, detailed in the Supplementary Material.

Additional information

Funding

This work was supported by Sichuan Province Science and Technology Support Program: [grant number 2021JDR0075]; China Scholarship Council: [grant number 202306240133].