Drive Down the Cost: Learning by Doing and Government Policies in the Global EV Battery Industry

Panle Barwick, Hyuk-soo Kwon, Shanjun Li and Nahim Bin Zahur

No 19852, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Electric vehicle (EV) battery costs have declined by more than 90% over the past decade. This study investigates the role of learning-by-doing (LBD) in driving this reduction and its interaction with two major government policies – consumer EV subsidies and local content requirements. Leveraging rich data on EV models and battery suppliers, we develop and estimate a structural model of the global EV industry that incorporates heterogeneous consumer choices and strategic pricing behaviors of EV producers and battery suppliers. The model allows us to recover battery costs for each EV model and quantify the extent of LBD in battery production. The learning rate is estimated to be 7.5% during our sample period after controlling for industry technological progress, economies of scale, input costs, and EV assembly experience. LBD magnifies the effectiveness of consumer EV subsidies and drives cross-country spillovers from these subsidies. Upstream battery suppliers capture only a minor share of LBD’s economic benefits, and consumer EV subsidies correct for the under-provision of learning and improve social welfare. China’s local content requirement helps domestic suppliers gain a competitive advantage at the cost of consumers and foreign suppliers but would have harmed domestic welfare if delayed by five years.

Keywords: Learning-by-doing (search for similar items in EconPapers)
JEL-codes: F13 L52 L62 Q48 (search for similar items in EconPapers)
Date: 2025-01
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