Fleet vehicle replacement strategy in the Korean market under phase-out of conventional vehicle

With the recent global requirements to phase out internal combustion engine vehicles (ICEVs), fleet owners (FOs) must consider battery electric vehicles (BEVs) as replacements, introducing regulatory risk due to policy changes. Many countries have legal retirement age limit for fleet vehicles (FVs), considered as policy constraint necessitating eventual replacement. Additionally, uncertainties like fuel price of ICEV and battery price affect the replacement decision. This study proposes an optimal replacement strategy using real option approach for annual decision- making under multiple risk factors. Using data from the Korean FV market, we provide managerial implications. Despite optimistic battery price projections, voluntary BEV switching is not expected to exceed 40% of total FVs. Sensitivity analysis reveals that adjusting the legal retirement age is more effective than changing the BGVSP implementation year. Also, A flexible subsidy based on fuel prices and the extension of the legal retirement age limit through safety inspections should be recommended.