The role of dealer demonstration in the adoption of electric vehicles

Abstract

A major concern that customers face when considering buying an electric vehicle is the uncertainty about its ability to cover their mobility needs. While an electric vehicle’s rated range is publicly known, the range it realistically achieves for a given customer is not, as it depends on idiosyncratic driving factors that customers can fully understand only through hands-on experience. Dealer services like extended test drives can alleviate customers’ concerns and have the potential to increase electric vehicle adoption. However, not all dealers adopt such demonstration practices and their environmental implications are not straightforward. In this paper, we develop a game-theoretic model to investigate when a dealer should offer demonstration services and whether doing so can increase electric vehicle adoption and reduce the environmental impact. We consider a car dealer who procures conventional and/or electric vehicles from a manufacturer and sells them to customers with heterogeneous mobility needs. Customers are a priori uncertain about the electric vehicle’s ability to meet their mobility needs; the dealer can provide demonstration services to mitigate the range uncertainty. We find that the dealer should offer demonstration as the electric vehicle range increases, but may refrain from offering demonstration when the production cost of electric vehicle decreases. In addition, offering demonstration leads to greater electric vehicle adoption only when the electric vehicle technology is less developed. Interestingly, even when offering demonstration leads to greater electric vehicle adoption, it may also lead to greater total usage emissions. We further examine the manufacturer’s Corporate Average Fuel Economy (CAFE) compliance and show that dealer demonstration can compromise the manufacturer’s ability to comply with the CAFE regulation while promoting electric vehicle adoption. Perhaps unexpectedly, to comply with a more stringent CAFE standard, the manufacturer may raise the wholesale price of the electric vehicle and, in the presence of demonstration, the electric vehicle adoption may be lower.