SME and EV Adoption: The Role of Financial Mediation Environment
Mikael Ahsan
23/09/2026
Electric vehicle (EV) adoption is globally accelerating but remains highly uneven across economies and firms. It is primarily demand-driven in developing economies, rather than a structural shift in production. This signals the need to observe factors affecting EV adoption in production. Therefore, considering the financial environment in an economy as a mechanism, this paper develops a static theoretical model of electric vehicle (EV) adoption and compares firms in two economies. Economy H has high financial constraints due to high interest rate and a tight borrowing cap while Economy L has a lower interest rate and a comparatively relaxed borrowing cap, both with a single profit maximizing small and medium enterprise each. Using Lagrangian optimization with Karush-Kuhn-Tucker (KKT) conditions, three results are derived. First, the borrowing cap determines the level of EV adoption. Firm in economy L achieves a higher EV adoption level when the borrowing constraint binds. Second, when the borrowing constraint binds, the borrowing cap is the sole determinant of EV adoption, while the interest rate affects profitability but not adoption quantity. Third, comparative statistics confirm that a higher interest rate reduces EV adoption level and a higher borrowing cap raises EV adoption at a diminishing rate. The results suggest that expanding borrowing capacity can raise EV adoption in firms and the shadow price of borrowing constraint potentially offers a basis for targeting the most constrained firms.