1. Introduction

1.1. Background and Context

A major shift in the global automobile sector is occurring as a result of the pressing need to combat climate change and lessen reliance on fossil fuels. Within this framework, new energy vehicles (NEVs)—such as plug-in hybrids, electric cars (EVs), and hydrogen fuel cell vehicles—have become an essential part of environmentally friendly transportation options. China has taken the lead in this shift, being the largest car market in the world. To encourage the use and development of NEVs, the Chinese government has put in place a number of aggressive policies. These policies are intended to reduce pollution in the environment, improve energy security, and boost economic growth.

Throughout the past decade, China's NEV business has grown remarkably because to both robust state backing and breakthroughs in technology. The government's support for NEVs is demonstrated by a number of initiatives, including as large expenditures in charging infrastructure, strict emissions standards, and attractive subsidies. These programs have not only sped up the adoption of NEVs but also elevated China to the top of the world's electric mobility rankings. Nevertheless, research and discussion on these policies' efficacy in raising consumer demand and enhancing business success is still ongoing.

1.2. Objectives of the Paper

This essay seeks to investigate how market demand and company performance are affected by the new energy vehicle laws implemented by the Chinese government. Three main questions will be the focus of the analysis:

What are the specific contents of the government’s new energy vehicle policies, and what impact have they had on the market?

Whether these policies have been successful in encouraging businesses to improve their environmental, social, and governance (ESG) practices.

How do these policies specifically affect the financial performance and market performance of enterprises, such as sales volume and market share?

This study aims to give a thorough knowledge of the mechanisms influencing policy impact, the driving force behind policy changes in the NEV market, and the strategic adjustments businesses must make in response to evolving policy.

1.3. Importance of the Study

Policymakers, business participants, investors, and consumers are just a few of the stakeholders who must comprehend how government policies and market dynamics interact. The study's findings can help policymakers create and execute more sensible policies that will support the NEV market's expansion while achieving more comprehensive environmental and financial goals. Businesses must comprehend the effects of policies in order to plan strategically and match their operations with opportunities in the market and legal obligations. Understanding how policy-driven changes in the market impact business performance and investment risks may be advantageous for investors. Lastly, customers will have a deeper comprehension of how governmental policies affect the accessibility, cost, and uptake of NEVs.

2. Government Policies on New Energy Vehicles

China's government has implemented a series of comprehensive and strategic policies to stimulate the development and adoption of new energy vehicles (NEVs). These policies can be categorized into four main areas: subsidies and incentives, policies and standards, infrastructure development, and research and development support.

2.1. Overview of Policies

Subsidies and Incentives: China's strategy on NEVs has been based mostly on financial incentives[1]. To bring down the price of NEVs, the government provides substantial subsidies to both producers and users. These incentives are frequently divided into tiers according to the battery capacity, energy efficiency, and electric range of the car. Further encouraging the purchase of NEVs are tax exemptions and reductions, such as the exemption from the vehicle purchase tax and lower license plate costs.

Policies and Standards: China has strict laws and guidelines in place to guarantee the reliability and security of NEVs. For the manufacturing of NEVs, they include mandated fuel consumption caps, pollution policies, and safety specifications. Additionally, the government enforces the dual-credit policy, which requires automakers to produce a specific proportion of NEVs in relation to their overall output. Businesses that don't reach these goals risk fines or being forced to buy credits from manufacturers that comply.

Infrastructure Development: Recognizing the importance of infrastructure in supporting NEV adoption, China has heavily invested in the development of charging networks and battery swapping stations.The government has set ambitious targets for the construction of charging stations, aiming to create a nationwide network that ensures accessibility and convenience for NEV owners[2]. Public-private partnerships have been encouraged to accelerate infrastructure deployment.

Research and Development Support: The Chinese government generously funds research and development (R&D) in order to promote innovation and technical growth in the NEV industry[3]. This covers tax breaks, grants, and low-interest loans for businesses and academic institutions working on NEV technology development. In order to spur innovation, the government also encourages partnerships between business, university, and research facilities.

2.2. Policy Goals and Objectives

China's NEV policies have many different objectives, but their main ones are to solve social, economic, and environmental problems.

Environmental Targets: Fighting air pollution and lowering greenhouse gas emissions are two of the key goals. Through encouraging the use of NEVs—which emit little or no tailpipe emissions as compared to traditional cars—the government hopes to fulfill its obligations under the Paris Agreement and enhance air quality.

Economic Targets: By establishing China as a worldwide leader in the NEV sector, the Chinese government hopes to promote competitiveness and economic growth. The government hopes to improve energy security by promoting innovation, high-tech job creation, and a decrease in dependency on foreign oil by bolstering the local NEV industry.

Social Targets: By lowering health problems associated with pollution, the development of NEVs is also meant to enhance public health. Furthermore, job possibilities and sustainable urban development are anticipated outcomes of the NEV sector's expansion.

2.3. Historical Context and Evolution of Policies

China's NEV policies have undergone many phases of development, which is indicative of the government's flexible response to market dynamics and technical breakthroughs.

Early Development (2009-2012): Establishing the foundation for the NEV market was the main goal of the first phase. In a few chosen cities, the government launched test projects that provided financial incentives to NEV producers and consumers. These initial initiatives sought to collect information for policy improvement and assess the viability of NEVs[4].

Scaling Up (2013-2015): The government increased subsidies and incentives across the country at this time. Setting up the dual-credit strategy was a big step toward making manufacturers adhere to output objectives. on addition, more money started to be invested on charging infrastructure, with an emphasis on cities.

Consolidation and Adjustment (2016-2019): In an effort to lessen reliance and promote market-driven growth, the government began to progressively phase off subsidies as the market developed. Refined policies were implemented to address issues like subsidy fraud and to encourage the use of better quality standards. Supporting R&D and promoting technical innovation became the new priorities.

Current Phase (2020-Present): The NEV market's long-term development and sustainable expansion are prioritized in the most recent phase. While enforcing stricter laws to guarantee environmental compliance and safety, the government continues to encourage R&D and infrastructure development. The significance of combining NEVs with smart grid technology and renewable energy sources is further highlighted by recent policies.

3. Impact on Market Demand and Corporate ESG Performance

The new energy vehicle (NEV) market has grown significantly in China as a result of the government's aggressive policies, as seen by the rise in market share, sales volume, and number of new participants. By the end of 2023, China's NEV sales reached a peak—37.7% of all vehicle sales[5]. This quick expansion is evidence of how well government assistance and incentives work.

A wide range of businesses, including both newcomers and established automakers, have been attracted to enter the NEV industry by the favorable legislative environment. Large, established automakers like SAIC and BYD have greatly increased their manufacturing of NEVs. In the meantime, fresh businesses have surfaced, such NIO, XPeng, and Li Auto, providing cutting-edge models that satisfy a range of customer requirements. The entry of new competitors has sparked creativity and competitiveness, which has accelerated market expansion.

Government policies have greatly changed consumer behavior and preferences in addition to having an impact on the supply side. NEVs are now more cheap because to financial incentives and subsidies, which lowers the initial cost barrier for buyers. These financial advantages, when combined with decreased operating expenses, have drawn more and more purchasers to NEVs. Government efforts encouraging green transportation and growing public knowledge of environmental concerns have also influenced consumer attitudes, with many now favoring NEVs due to their lower emissions and smaller carbon footprint. Supporting from innovations in technology also had a significant impact on consumer tastes. The restricted range and lengthy charging periods that were early worries about NEVs have been resolved by advances in battery efficiency and driving range. The emergence of intelligent and networked car technologies has increased the allure of NEVs, especially for consumers who are tech-savvy and appreciate cutting-edge features. The development of the infrastructure for charging NEVs has also reduced range anxiety, improving customer confidence and simplifying the ownership and operation of NEVs.

Case studies that focus on NEV industry can be used to demonstrate how government policies affect market demand. Government assistance has greatly benefited BYD, a pioneer in the Chinese NEV sector. The company's models' dependability, affordability, and performance have allowed its NEV sales to continuously rank among the best in the industry. Comparably, NIO, a more recent arrival, has become well-known for its high-end electric SUVs and has used government subsidies to provide cutting-edge technologies like battery swapping technology. Younger, tech-savvy consumers have responded favorably to XPeng's concentration on smart and connected car technology, underscoring the impact of policies on innovation and the ability of start-ups to prosper.

Various Chinese areas have various effects from government policies on the demand for NEVs due to factors including infrastructural development, local policy execution, and economic situations. Because of their strong policies, extensive charging infrastructure, and strict local rules, megacities like Beijing and Shanghai have been leading the way in the adoption of NEVs. Local policies that encourage the use of NEVs in certain places, such license plate quotas, have reinforced this trend [6]. On the other hand, the adoption of NEVs has been slower in less developed regions, mainly because of their less established infrastructure and weaker economic capability. Ongoing government initiatives, however, are meant to correct these imbalances and encourage more consistent growth throughout the nation.

Not only has the NEV market grown significantly, but firms' environmental, social, and governance (ESG) performance has improved as well. NEVs have a clear positive impact on the environment since they lower greenhouse gas emissions and enhance air quality [7]. The transition to electric vehicles is consistent with China's overarching environmental objectives, such as its carbon neutrality aspirations. In terms of society, the NEV sector has advanced technology and produced a large number of employments. Businesses that thrive in the ESG space attract investments, win over customers' trust, and establish favorable brand perceptions—all of which strengthen their position in the market.

To sum up, the guidelines implemented by the Chinese government have had a significant effect on the NEV industry, leading to notable increases in sales volume, market share, and consumer acceptance. In addition to influencing consumer behavior toward more environmentally friendly transportation alternatives, these rules have created a favorable atmosphere for both new and established players. The next section will examine the impact of these rules on corporate performance, specifically with regard to financial and market performance, and offer suggestions for businesses to effectively manage this changing environment.

4. Mechanisms of Policy Impact and Corporate Strategy Adjustments

Corporate conduct has been significantly impacted by the NEV policies of the Chinese government, which have an impact on both financial performance and strategic planning. These policies have pushed R&D spending, encouraged creativity, and forced businesses to change in order to be competitive in a changing market. NEV policies have increased R&D spending significantly, which has led to advances in technology and better product offers [8]. Businesses such as BYD and NIO have strengthened their market position by utilizing government incentives to advance their technological skills. Automakers have been forced to innovate and diversify their NEV portfolios by the dual credit policy, which combines Corporate Average Fuel Consumption (CAFC) criteria with NEV output limits. This has forced automakers to boost NEV production and make investments in sustainable technology.

To be competitive, businesses need to strategically match their operations with legislative needs. This alignment depends critically on increased R&D spending, increased manufacturing capacity, and technical breakthroughs. Government incentives encourage businesses to innovate by lowering manufacturing costs and increasing profit margins. Creating alliances and working together with IT companies is a popular tactic to promote efficiency and innovation in NEV manufacturing [9]. Increasing NEV portfolios is another corporate strategy used to meet a variety of customer demands. This strategy not only increases market competitiveness but also supports government goals of encouraging environmentally friendly transportation. To raise knowledge and acceptance of NEVs, effective marketing and consumer education initiatives are crucial. Companies also need to highlight the advantages of NEVs, such as cost savings and environmental sustainability to rise customer demand and loyalty.

The market dynamics clearly show how these policies have a major influence. Market share has been lost by established automakers that put off switching to NEVs in favor of quicker and more creative rivals like XPeng and Li Auto. These more recent businesses have made great strides in the market by utilizing cutting-edge technologies and producing goods that appeal to consumers who are familiar with technology. This move emphasizes how crucial it is to promptly adjust strategy in reaction to changes in policy. Companies need to continuously adjust to the changing NEV scenario. Businesses must concentrate on growing their NEV portfolios, spending money on marketing, and educating consumers. Good customer education regarding the advantages of NEVs may raise awareness and acceptability among consumers, resulting in increased demand and loyalty. To remain competitive, businesses also need to invest in R&D and technology developments.

The significance of strategic adaptability is demonstrated by cases of businesses such as BYD and NIO. Government assistance has greatly benefited BYD, whose NEV sales rank among the best in the industry. Similarly, NIO has become well-known for its high-end electric SUVs and ground-breaking battery-swapping technology. These businesses have effectively matched government policies with their objectives, spurring development and innovation[10].

In summary, the NEV policies implemented by the Chinese government have had a significant impact on company strategy, encouraging expenditures in R&D, innovation, and market development. Businesses are well-positioned to prosper in the competitive NEV market if they proactively adjust to these policies by taking advantage of government incentives, enhancing ESG performance, and clearly conveying the advantages of NEVs. Sustaining success in this quickly changing sector requires ongoing alignment with governmental goals and investments in sustainable technology.

5. Conclusion

The new energy vehicle (NEV) policies implemented by the Chinese government have had a major impact on improving business performance, revolutionizing the automotive sector, and spurring development in market demand. These laws have effectively encouraged the uptake and innovation of NEVs through a mix of financial incentives, regulatory assistance, and infrastructure development. They have stimulated R&D expenditures, enhanced manufacturing capabilities, and the introduction of novel models by both established manufacturers and recent entrants, resulting in higher sales volumes and market shares.

These policies have had a significant effect on the performance of Environmental, Social, and Governance (ESG). Businesses today have a stronger commitment to employment creation, environmental aims, and regulatory compliance. The government has supported economic growth, environmental sustainability, and social advancement by creating an environment that is favorable for the development of NEVs.

Leaders in the field like BYD and NIO provide as excellent examples of the benefits of strategically adjusting to these rules. Thanks to government backing and a significant emphasis on research and development, BYD has continuously ranked among the top manufacturers of NEVs. With its high-end electric SUVs and cutting-edge battery-swapping technology, NIO has also seen impressive expansion and market share penetration. Companies need to invest in sustainable technology, keep their strategy in line with government goals, and properly inform customers about the advantages of NEVs if they hope to maintain and grow on these achievements. This strategy will increase customer loyalty and demand, which will accelerate market expansion.

In conclusion, the NEV regulations implemented by the Chinese government have revolutionized the automobile sector, resulting in significant increases in market demand, company performance, and environmental, social, and governance (ESG) results. Leading firms of NEV market underscores the significance of strategic flexibility and inventiveness. Businesses may benefit in the rapidly evolving NEV sector and contribute to a sustainable and prosperous future by sticking to government laws and making investments in sustainable technology. These regulations show how well-thought-out government actions may spur economic development and environmental sustainability, and they offer a model for other nations to imitate.