Abstract

Driven by environmental awareness and new regulations for fuel efficiency, electric vehicles (EVs) have significantly evolved in the last decade, though their market share is still much lower than expected. Besides understanding the reasons for this slow market penetration, it is crucial to have appropriate models to predict the right diffusion of these innovative automobiles. Recent studies predicting the evolution of the market for EVs combine substitution with diffusion models. In these models advanced discrete choice models are used to measure the substitution effect among alternative vehicle’s engines, while Bass-type methods are used to account for the diffusion effect of innovation. However, the most recent substitution/diffusion models are not explicitly dynamic, nor measure the fact that innovation is communicated through certain channels over time among members of a social system. In this paper, we extend these substitution/diffusion models by including explicitly the dynamic effect. This dimension makes the EV demand in a given period dependent on the EV sold in a previous period. In this modeling scheme, we also account for and measure, for the first time, some of the effects of social conformity on individuals’ choices. The model also includes the impact of policy incentives, in particular in the availability of parking spaces and parking cost strategies. We illustrate our model for the Danish EV market using data for the period 2013-2017. Results show an initial slow penetration of the EV in the market, that progressively increases in the 2050 horizon.