Conventional automotive supply chains under China's dual-credit policy : fuel economy, production and coordination

Abstract

As a sustainability policy in emerging markets, the dual-credit policy was implemented in China to reduce corporate average fuel consumption and to promote new energy vehicles (NEVs). Through a game theoretic approach, the fuel economy improvement level and the production of traditional internal combustion engine vehicles (ICEVs) and NEVs are discussed. Research and development cost sharing contracts and ICEV revenue sharing contracts are designed to coordinate conventional automotive supply chains. We compare the current and revised dual-credit policy, identify some policy flaws and propose amendments. The dual-credit policy does not always help automotive supply chains to improve fuel economy, reduce the production of high fuel consumption vehicles, and produce more low fuel consumption vehicles and NEVs. The implementation and selection of coordination contracts are explored. Both of the above contracts may not be able to coordinate the supply chain, and cost sharing contracts may be better than revenue sharing contracts in some cases. Finally, we present some management insights into the response to the dual-credit policy.