Innovation based on the co-evolution of institutions and firms: An integrative literature review of the electric vehicle transition

Innovation is a key driver of economic growth, transforming industries and reshaping competitive advantage. This process, usually led by firms, often drives research toward pollution-intensive directions due to path dependence and lock-in around existing technologies and incumbent business models. Given the societal impact of road transportation, the decarbonization of mobility became a priority for governments, leading the transition to electric vehicles. This paper argues that the electric vehicle transition is not solely a firm-led technological innovation, but a co-evolutionary innovation shaped by institutions and firms. Using an Integrative Literature Review, the study reviewed this transition to explore how formal institutions (e.g. regulation, industrial policy), informal institutions (societal values, expectations), and firms’ strategies interact over time to produce sustainable innovation. The study identifies five distinct phases, each characterized by different institutional roles, corporate strategies and societal attitudes. This research offers a significant contribution to both co-evolutionary theory and innovation management, particularly in the context of sustainability transitions, by advancing a new co-evolutionary innovation framework with a mission-oriented perspective. The proposed multi-phase model provides an analytical lens for policymakers and business practitioners to examine how institutional pressure evolves toward market-based competition as innovation diffuses, highlighting how effective collaboration between public institutions and private firms can enable sustainable innovation.