Between 2010 and 2020, the cost of electric vehicle (EV) batteries dropped by nearly 90 percent, reducing a major obstacle to widespread EV adoption. Industry experts attribute much of this decline to learning-by-doing, where production experience leads to lower costs through improved efficiency and reduced waste. Harris School of Public Policy Assistant Professor Hyuk-soo Kwon and his co-authors quantify the impact of learning-by-doing on declining EV battery costs and examine how learning-by-doing influences the effectiveness of policies like subsidies.
With subsidies alone, the authors found global EV sales would increase by 29.9 percent. But when learning-by-doing is considered, global EV sales surge by 170 percent. This combined effect is 60 percent greater than either subsidies or learning-by-doing can accomplish alone. This is the case if subsidies are the same across countries. But they also found that a subsidy in one country can have spillover learning-by-doing benefits in another country, depending on the supply chain network and trade patterns.