Recently, the energy scarcity and environmental pollution have greatly promoted rapid development of the electric vehicles (EV) industry. In this context, we established a scenario analysis using system dynamics model to analyze the development of EV in China under policy incentives. Four scenarios were set in this paper: scenario 1 (Without any policy), scenario 2 (Only direct policy), scenario 3 (Only indirect policy), scenario 4 (Both direct & indirect policy). It is shown that the EV industry was in preliminary stage in 2010. After a period of development, in 2040, the total amount of EVs will reach 4.03, 8.61, 4.2 and 8.85 million in scenario 1-4. The results indicate that China's EV market penetration is mainly dominated by state policies, especially the financial supports. Reducing the governments' financial supports for EVs will put EV manufacturers at a cost disadvantage in the automobile markets. In addition, because of our emerging carbon market and low average carbon price, participating in carbon trading market cannot promote a rapid growth by stimulating investment passion. In all, cutting the financial supports is not a good option, because the large-scale market penetration still requires the clear and strong policy incentives.