Governments face increasing pressure to meet net zero targets, requiring the electrification of transport and heating. This paper investigates whether a cost-effective, optimal strategy exists for a country and its citizens to transition from internal combustion engine (ICE) vehicles to electric vehicles (EVs). We present a case study of the UK, and comment on how the transition to EVs is happening around the EU.

We propose a novel approach to the policy problem, including elements of mathematical finance and economics. Our model of the demand for new EVs is a function depending on stochastic factors such as fuel costs as well as government controlled policy decisions. The government is assumed to control tax incentives for EV owners and purchase subsidies for new vehicles and they both influence the demand. By computing the total future costs of these strategies and weighing them against potential penalties for failing to meet targets, we are able to write a Hamilton Jacobi Bellman equation which can be solved to identify the best policy pathway.

Our initial results indicate that a significant number of cars might need to be retired early to comply with net-zero targets, unless a fast transition to EV sales is taken over the next ten years. The model provides a structured framework for policymakers to design cost-efficient EV adoption strategies under different economic conditions.