Motivated by the increasing environmental concerns about the used electric vehicle batteries in China, an electric vehicle manufacturer’s battery recycling strategy under government subsidy was studied. A consumer utility function was used to capture consumer environmental awareness associated with battery recycling and the game-theoretical approach was applied to analyze the interaction between the government and the manufacturer. It was found that, with an exogenous government subsidy, the manufacturer either recycles all the batteries, or it does not recycle any batteries if the impact of the recycling scale on costs is unremarkable; otherwise, the manufacturer recycles some used batteries when the benefit from recycling is moderate. Interestingly, an increased subsidy causes the manufacturer’s battery recycling rate to decrease if the subsidy is sufficiently large. When the government subsidy is endogenously, either full recycling, no recycling, or partial recycling can still arise. The optimal battery recycling rate and social welfare are lower in a non-cooperative game than in a cooperative game if the benefit from recycling is relatively low. The main findings were numerically justified with realistic subsidy data in China. The numerical results indicate: (1) the optimal battery recycling rate locates in a closed interval from 0 to 1 given an exogenous or an endogenous government subsidy, and it decreases with the subsidy when the subsidy is not less than 50% of the production cost of electric vehicle; (2) the social welfare first increases to a maximum value and then decreases as the subsidy increases; and (3) the optimal battery recycling rate increases significantly and the social welfare is improved when there is cooperation between the government and the manufacturer.
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