RESEARCH PAPER

The Impact of Price and Other Factors on Purchasing Electric Cars

Student’s Name

University Affiliation

Table of Contents

CHAPTER 1: INTRODUCTION.. 3

Introduction. 3

Statement of the Problem.. 4

Research Objectives. 4

Research Questions. 5

Research Hypothesis. 5

Research Justification. 5

CHAPTER 2: LITERATURE REVIEW… 6

Recent Studies. 6

Conceptual Framework. 11

CHAPTER 3: METHODOLOGY.. 11

Philosophy of the Study. 11

Nature of the Study. 12

Qualitative and Quantitative Methods. 12

Data types, Sources, and Collection Techniques. 13

Population and Sampling. 13

The Econometric Model 14

References. 15

Questionnaire. 16

CHAPTER 1: INTRODUCTION

Introduction

The transport sector is the second largest emitter of greenhouse gasses in the world. Over the years, research has been going on to understand the various aspects of technologies that could help cut carbon emissions in the transport sector. Consequently, several alternatives to the conventional engine (that is usually powered by petro or diesel) have been developed. One of the technologies that could help reduce Carbon Dioxide emission in the transport sector is the hybrid electric vehicle. However, hybrid electric cars have a diesel engine that still emits Carbon Dioxide leading to environmental pollution. Another alternative that have been developed is the full electric vehicle. A full eclectic car is powered by a battery and there is zero carbon dioxide emission if the electricity charging the battery is generated from renewable sources of energy. For instance, using solar charging stations to power electric vehicle could reduce greenhouse gasses emission by up to 34 percent. Powering vehicles by electricity is not a new technology. Electric vehicles have been there since the early years of motorization.  However, they were not popular until late 20^th century and early 21^st century when environmental concerns related to carbon dioxide emissions started arising.

Early 21^st century saw the beginning of mass production of electric vehicles. For instance, by November 2014, Renault- Nissan alliance had sold 200,000 electric cars. However, it is worth noting that the success of the transition from conventional fossil fuel powered engines to full electric cars depends significantly on the consumer behavior. Thus, it is important to understand the factors that affect the consumers’ acceptance of the electric cars. There are myriad factors affecting car-purchasing behavior including price, government policy, and personal tastes. This research paper will examine how these factors could be affecting the purchase of electric vehicles.

Statement of the Problem

Climate change has become a serious issue that could challenge continuous existence of mankind and other organisms on Planet earth. Weather conditions are becoming extreme and more unpredictable as a result global warming. One of the causes of the climatic change is the increased emission of greenhouse gasses such as Carbon dioxide. To reverse the problem, there has been an intensified campaign urging people reduce activities that leads the emission of greenhouse gasses. People have also been encouraged to adopt technologies the minimized the use of non-renewable energy sources. As a result, one of the most important inventions has been the electric vehicle. Electric vehicle is powered by electricity and it replaces the conventional diesel or petrol engine vehicle.   However, as to whether the consumer is going to accept the electric car remains an important question to scholars and manufactures alike. Little has been done investigate the extent to which factors such as price, personal taste, durability, and government policy affect the purchasing behavior of customers in the electric vehicle market. This research paper is going to take an empirical approach to address this apparent research problem.

Research Objectives

This research paper has one broad objective and four specific objectives. The main objective of this paper is to understand the factors that affect the consumers’ purchasing behavior in the purchase of electric vehicles. More precisely, this paper seeks to achieve the following specific objectives.

• To investigate the extent to which prices affects the consumer’s purchasing behaviors in the electric vehicles market.
• To study how customers’ personal taste affects the purchase of electric vehicles.
• To investigate the effects of government policy on the purchase of electric vehicles.
• To investigate the extent to which battery durability influences the purchase of electric vehicle.

Research Questions

This research paper seeks to answer the following research questions;

• To what extent does price influence the purchase of electric cars
• Does the government policy affect the demand for electric cars?
• To what extent is battery durability a problem in the electric car market.
• To what extent does personal taste affects customer purchasing behavior in the purchase of electric vehicles?

Research Hypothesis

The researcher will test empirically the following null hypotheses.

• H₀ : Price has no significant effect on the purchase of electric vehicle
• H₀ : Government policy does not influence the demand for electric vehicles
• H₀: Battery durability is not a significant issue for electric cars consumers.
• Personal taste does not affect the demand for electric cars.

Research Justification

Naturally, many people are afraid of transitions. Change involves movement from a situation of certainty to a situation of unknown. Such are the fears surrounding the transition from conventional vehicles to electric vehicles technology.  Perhaps this is the reason the transition is not taking place as fast as expected. This research seeks to understand the factors that affect car purchasing behavior of customers. Thus, the findings of this research will be useful to policy makers and electric car manufactures. It will enable them understand what the real customer concerns are and respond accordingly in order to fast track the transition and save planet earth from greenhouse gasses emission.

CHAPTER 2: LITERATURE REVIEW

In this chapter, the researcher is interested in examining what other researchers have achieved in explaining the factors that affects the purchase of electric vehicles. The researcher will rely on peer-reviewed journal articles.   The aim is to understand how far other researchers have gone in the research topic and identify the research gap.

Recent Studies

A study by Gallagher and Muehlegger (2011) investigated the impact of sales tax waiver, income tax credit, and high gasoline prices on the sales of hybrid electric vehicles in the United States. The study found that that sales tax waiver, income tax credit and high gasoline prices significantly affect the sales of hybrid electric vehicles. The study established that sales tax waivers are seven times more effective in encouraging the purchase of hybrid electric cars as compared to income tax credit. The study found that high gasoline prices accounts for 27% of the growths in hybrid electric car sales, while tax incentives accounts for 6% growth. According to the study, non-tax issues such as personal preferences accounts for up to 36 percent growth in the sales of hybrid electric cars. In conclusion, the study suggests that government policy is an important determinant of customers’ purchasing behaviors in the hybrid electric cars market.

Egbue and Long (2012) did a research on the barriers that undermine the widespread adoption of electric vehicles. The researchers postulate that the main barriers are created by consumers’ resistance to new unproven technologies. The research also looks at the social-economic barriers and argues that technology enthusiasts usually have knowledge of the differences between conventional cars and electric cars. The preference of this group is associated by the technical superiority of either the electric cars or the conventional cars. If they perceive electric cars as technically inferior to the conventional cars, it becomes very difficult to convince them to buy electric cars. On the other hand, if they perceive electric cars as being technically superior to conventional cars, they require very little persuasion to buy electric cars. Environment enthusiasts are more sensitive to environmental effect of their vehicles. It is easy for them to buy electric cars if they are persuaded that electric cars are environmentally friendly. The other group is concerned with economic issues. To them, they need cars that are affordable and less costly to maintain. This group will resists electric cars if they are more costly as compared conventional cars. The research concludes that to tackle the barriers that undermine the adoption of electric cars, manufacturers have to work on making electric cars technically superior to conventional cars  and cutting on the cost of production. Governments also need to work on policies that reduce the cost of purchasing and maintaining electric cars.

Feng and Figliozzi (2013) conducted a study on the technological factors that affects competitiveness of electric vehicles. The study argues that although electric cars are less costly to fuel as compared to conventional cars, the electric cars still remain less competitive due to technological issues. The study found technological and economic breakeven values at which electric vehicles becomes more competitive as compared to conventional vehicles. The study established that the only scenario where electric vehicles can be more competitive is where there is utilization of over 16000 miles per year per vehicle and the battery replacement is not necessary until the vehicle is replaced. The analysis shows that competitiveness of electric cars against conventional cars can significantly be enhanced if the purchasing price is reduced by 9% to 17% in a case where the vehicle is driven at least 12,000 mile annually.

Erdem, Şentürk, and Şimşek (2010) conducted a survey to investigate the factors that influence the willingness to pay a premium for energy-efficient hybrid electric vehicles in Turkey. The researchers administered questionnaires to 1983 participants spread across Turkey via the internet. The study found that economic factors such as income levels are important determinants the willingness to pay a premium for energy-efficient hybrid electric vehicles. The study further found important demographic factors such as gender and age to be be having some impact. It was also established that social factor such as education affects people’s willingness to purchase energy efficient vehicles. Technological/Technical issues such as performance were also found   to be significant factors. The study recommended that removing barriers to adoption of energy efficient vehicles requires an approach that takes into consideration the various demographic, social and economic factors.

Sierzchula, Bakker, Maat, and Wee (2014) investigated the effects of financial incentives on the adoption of electric vehicles. The study identified three social-economic factors affecting electric vehicles adoption rates. Using a multiple regression analysis approach, the researchers examined the nature of the relationships between those variables. It was established that improving infrastructure, presence of local electric vehicle manufactures, and consumers’ financial incentives were positively associated with high electric vehicles adoption rates. The results of the linear regression model showed that of all the factors, improving infrastructure had the strongest positive associating with electric vehicle adoption rates. However, descriptive analysis showed that the association between electric vehicles adoption rates and improving infrastructure and financial incentives is insignificant. Thus, regression model and descriptive analysis gave contradictory results.

Schuitema, Anable, Skippon, and Kinnear (2013) did a research to investigate how the drivers’ perception concerning the attributes of a vehicle may influence their willingness to adopt electric vehicles in United Kingdom. The study concentrated on hedonic, instrumental, and symbolic attributes. The study relied on data from an online survey covering potential electric vehicles adopters in the United Kingdom. The study found that instrumental factors are integral determinants of the willingness to adopt electric vehicles and they are derived from hedonic attributes such as the pleasure of driving and symbolic attributes such as the identity obtained from owning an electric vehicle.  Thus, the study suggests that drivers who think that pro-environmental identity will boost their self-image are more likely going to have positive attitude towards electric vehicles and the decision to adopt electric vehicles is very easy to make for them.

Ozaki & Sevastyanova (2011) in their research investigated the factors that motivate customers to purchase hybrid electric motor vehicles. The research relied on a survey conducted with the help of Toyota GB. The researchers received 1484 responses but only 1263 of them were usable for the purpose of the analysis. The study involved the identification and the analysis of the dimensions that constitutes the factors that motivates customers to buy the Prius. The researchers also investigated how government policy influences hybrid electric vehicles adoption. The study found that financial benefits associated with the transport policies are significant factors motivating people to buy hybrid electric vehicles. The study also established that social norms are motivating factors to the purchasing of hybrid electric cars as individuals seek to comply with the norms of their specific groups. In a nut shell, the study found that financial incentives and social norms are significant factors that motivate people to purchase hybrid electric vehicles.

Caulfield, Farrellb, and McMahon (2010) conducted a research to investigate the individual motivations when purchasing vehicles with special focus on the factors that motivates people to go for hybrid electric cars or conventional cars. The study investigated whether the reduction of fuel cost and motor vehicle registration tax for hybrid electrics cars has positive effects on hybrid vehicles adoption rate. The researchers surveyed new car owners in the Republic of Northern Ireland and asked them how important environmental conservation and fuel efficiency were in their decisions on the car they bought. The research found that motor vehicle registration taxes and environmental conservation were not important factors for most of the respondents. However, the study found that the price of the vehicle, reliability and fuel cost were important consideration for the new car owners. Nevertheless, most of the respondents said that they were aware that hybrid electric cars are environmentally friendly as compared to conventional cars.

From the foregoing, it is apparent that substantial research has been conducted to investigate consumers’ behavior when it comes to choosing between electric vehicles and conventional vehicles. However, much of the research has been focused on hybrid electric cars and the cost of fuel. Very little has been done to examine the effect of price of electric cars on the electric vehicles’ adoption rates. This research paper will address this apparent research gap by focusing on full electric cars and paying attention to their prices with regards to how they affects the consumer choices between electric cars and conventional cars. Other important factors such as consumers’ tastes and government policy will also be incorporated in the analysis.

Conceptual Framework

From the review of the recent research, it is apparent that the factors affecting the purchase of electric motor vehicles can be classified as technical, social-economic and psychological. This can be summarized as in the chart below.

CHAPTER 3: METHODOLOGY

In this chapter, the researcher seeks to outline the approach that was taken in conducting the research. The researchers will elaborate the philosophy and the nature of the study. The researcher will then discuss the data types, sources and the collection procedure. Finally, the researcher will derive and discus the econometric model for this particular study.

Philosophy of the Study

Positivism is the philosophy that guided the researcher throughout the study. That means that the assertions and the findings of this research can withstand mathematical or logical test. In other words, this research is all about available facts, and is not the opinion of the researcher. Thus, the data was analyzed as collected and was not doctored to meet any preconceived expectations. Furthermore, the data was analyzed using econometric and statistical techniques and therefore, the results are independent of the researcher. As a result, this research is objective and any other researcher doing the same study using the same data should get similar results.

Nature of the Study

This empirical research is both descriptive and causal in nature. It is descriptive to the extent that it seeks test associations between electric vehicles adoption rates and the factors hypothesized to have effects on it. According to Bryman and Bell (2015) descriptive research is applicable where a problem has been adentified and the respondents can be accessed to report about their experiences. In this study, the researcher was in an position to access the respondents and ask them questions through self-adminitered questionaires. Thus, descriptive design made sense for this study.  It is causal to the extent that it further seeks to establish whether the nature of the association is causal in nature. For instance, knowing that prices of electric cars are correlated with the electric car adoption rates may be important for scholarly purposes. However, establishing whether the association is causal in nature makes more sense for policy makers and manufacturers.

Qualitative and Quantitative Methods

This research makes use of both qualitative and quantitative approaches. The quantitative approach can be identifies with analysis techniques that have to do with statistical and mathematical modeling methods aimed at providing summary statistics that conclusively describe the phenomenon under investigation.  On the other hand, qualitative analysis involves the analysis of information that cannot be expressed numerically. It deals with the analysis of information expressed in words or sentences. From the above discussion of the approaches, it is apparent that that quantitative methodology has an edge over the qualitative approach.  This is because the application of mathematical or statistical techniques makes the quantitative methods more accurate and objective as compared to qualitative methods. Nevertheless, the researcher made use of both the quantitative and qualitative methods due to the nature of the research questions. In any case, the researcher acknowledges that no research can be perfect in every dimension.

Data types, Sources, and Collection Techniques

This research made use of both secondary and primary types of data. Primary data can be understood as first-hand data collected directly from the respondents. This research paper heavily relied on primary data collected from new car owners through questionnaires. Secondary data is second-hand data collected from published sources. This type of data was particularly important in the development of the theoretical framework for this research. Secondary data was mainly retrieved from peer-reviewed journal articles and textbooks.

Population and Sampling

A typical population for this study would be all car owners in the country. However, it is not practically possible for the researcher to obtain information from the millions of car owners in the country. Thus the researcher relied on a sample of all the car owners. The researcher obtained email addresses of new car owners (who have bought new cars in the last six months) from the local car dealers. The researcher then emailed the questionnaire to them. In total, 547 questionnaires were distributed. After 2 weeks, 532 of the respondents had replied and the researcher was ready to go ahead and analyze the data. Of the 532 returned questionnaires, 516 were usable. Thus, the research relied on a sample size of 516 new car owners.

The Econometric Model

The econometric model used in this study is based on the study of Sierzchula, Bakker, Maat, and Wee (2014). It is a simple multiple regression model with the dependent variable being electric vehicles adoption rate and the independent variables being The price of the electic vehicles, personal taste, durability, and the government policy. The model is as shown below.

EVAR = a₀ + a₁ (PRICE) + a₂ (DURABILITY) + a₃ (TASTE) + a₄ (GVT POLICY) + e

Where EVCR is Electric Vehicle adoption Rate,

A₀ the regression constant

a₁, a₂, a₃, and a₄ are the regression coefficients, and

e is the the regression error.

References

Bryman, A., & Bell, E. (2015). Business research methods. New York: Oxford University Press.

Caulfield, B., Farrellb, S., & McMahon, B. (2010). Examining individuals preferences for hybrid electric and alternatively fuelled vehicles. Transport Policy, 381–387.

Egbue, O., & Long, S. (2012). Barriers to widespread adoption of electric vehicles: An analysis of consumer attitudes and perceptions. Energy policy, 17-29.

Erdem, C., Şentürk, İ., & Şimşek, T. (2010). Identifying the factors affecting the willingness to pay for fuel-efficient vehicles in Turkey: a case of hybrids. Energy Policy , 38-43.

Feng, W., & Figliozzi, M. (2013). An economic and technological analysis of the key factors affecting the competitiveness of electric commercial vehicles: A case study from the USA market. Transportation Research Part C: Emerging Technologies, 135-145.

Gallagher, K. S., & Muehlegger, E. (2011). Giving green to get green? Incentives and consumer adoption of hybrid vehicle technology. ournal of Environmental Economics and management, 1-15.

Ozaki, R., & Sevastyanova, K. (2011). Going hybrid: An analysis of consumer purchase motivations. Energy Policy, 2217-2227.

Schuitema, G., Anable, J., Skippon, S., & Kinnear, N. (2013). The role of instrumental, hedonic and symbolic attributes in the intention to adopt electric vehicles. Transportation Research Part A: Policy and Practice, 39-49.

Sierzchula, W., Bakker, S., Maat, K., & Wee, B. v. (2014). The influence of financial incentives and other socio-economic factors on electric vehicle adoption. Energy Policy, 183-194.

Questionnaire

We thank you for accepting to take part in this survey. The aim of this survey is to study the factors that customers consider when purchasing vehicles. The study will help the government to come up with policies that will encourage people to adopt electric vehicles. It will also be of help to manufacturers who wish to improve their sales of electrical vehicles. This is important because it will help conserve the environment and reverse global warming as a result of reduces carbon dioxide emission. Please answer the questions appropriately.

1. Personal and Car Details: Please fill in the blank spaces or tick your appropriate
2. Age…………………………………………….
3. Gender………………………………………
4. Type of your current vehicle

• Electrical
• Hybrid Electrical
• Conventional (Diesel/Petrol Engine)

1. Type of your previous vehicle

• Electrical
• Hybrid Electrical
• Conventional (Diesel/Petrol Engine)

1. Type of the car you would like to buy next

• Electrical
• Hybrid Electrical
• Conventional (Diesel/Petrol Engine)

2. Economic concerns: Please Rank the extent to which you agree with the following statements regarding your decision making process when purchasing a vehicle.

Key

1 for strongly disagree,

2 for disagree,

3 for neither agree nor disagree,

4 for disagree

5 for strongly disagree

3. Environmental concerns: Just as in section 2 above, please rank the following questions with regards to your concerns about environment when purchasing a car

4. Government Policy: Just as in section 2 above, rank your perception of the following statements with regards to government policy.

5. Technical Concerns: As in section 2 above, rank the following statements regarding technology in the motor vehicle industry.

6. Social and psychological Concerns: Please rank the following statements using the same key given in section 2.

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