Your Electric Vehicle Lending Forecast for the Future
The coronavirus pandemic that spread throughout the world during 2020 overshadowed a notable occurrence in the electric vehicle market. Despite the presence of COVID-19 in just about every corner of the globe, 2020 was the year in which the number of electric automobiles on the road surpassed ten million. This was a 43 percent increase over 2019, with registrations for electric cars also increasing over the period. These figures are rather remarkable, as the overall auto market globally saw a 16 percent drop, while registrations dropped by a third. With conventional car sales dropping, sales of electric vehicles actually increased by 70 percent, becoming a record 4.6 percent of all auto sales.
While this was less significant in the United States, where the overall auto market declined by 23 percent, the electric vehicle market fell considerably less. The drop in electric auto sales was mostly due to the ending of federal incentives for the two major electric vehicle makers—Tesla and General Motors—that account for the majority of electric vehicles registered. Despite this, of all vehicles registered in the United States during 2020, 295 thousand of these were electric. Vehicle lending forecasts show the electric vehicle market is projected to grow 21.7 percent at a compound annual growth rate (CAGR) from 2022 to 2030, with subsidies and tax rebates by governments looking to drive many of these sales.
Current Trajectory of Electric Vehicle Lending
Though sales continue to grow rapidly, electric vehicle financing is still in its infancy. While original equipment manufacturers (OEM) are investing in electric vehicle technology and consumer attitudes have shifted favorably, consumer loan providers also need to change how they do business regarding electric vehicle lending. Forecasting the future of electric auto financing should also involve looking at what’s driving these sales and how they affect OEMs, auto dealerships, captive finance companies, and consumer auto lenders. There are many reasons the electric vehicle market is growing so quickly, particularly due to government inducements.
Government financial incentives have included:
- Cash subsidies to consumers purchasing low-emission vehicles.
- Increased taxes on vehicles with internal combustion engines.
- Reduced taxes on electric vehicles.
However, these subsidies will eventually end as electric vehicle prices come in line with those of conventional vehicles.
Finance According to Customers
As competition between various lenders increases for a share of the electric auto market, the focus will turn increasingly to consumers’ behavior and needs. Data from applicants that looks at why a person drives, along with demographics like age and where they live, can be used to gauge which approach will best serve a potential borrower when it comes to electric vehicle lending. Forecasting which customers are most likely to purchase an electric vehicle and why will become a more prominent means for determining loan terms and what add-on services might best serve each individual buyer.
Lenders will need to consider consumer driving behavior, including:
- Commuters who make long distance commutes.
- Current vehicle owners who drive for multiple purposes.
- Drivers who want vehicles for both work and personal travel.
- People who use their personal transport for only short trips, for work, or non-work purposes.
- Regular commuters who rarely travel longer distances.
- Those who don’t currently own a vehicle, but would want one for multiple purposes.
- Travelers who regularly drive long distances, including for work.
By considering these different segments of the driving population and their reasoning behind purchasing an electric vehicle, lending forecasters can then consider these behaviors, along with their needs and desires. Additionally, consumer auto lenders will want to consider other attitudes and behavior.
These will include how potential buyers consider:
- Benefits of ownership: While many will look at the positive environmental aspects of owning an electric vehicle, others will consider the driving experience as most important.
- Brand loyalty: Some automobile owners will want to buy an electric vehicle from their current gas-powered vehicle manufacturer, while others will be more inclined to switch brands based on suitability. Other potential customers would be more likely to go with a startup brand or with an existing brand not associated with automotive products.
- Price: Certain consumers will be willing to pay more monthly to own an electric vehicle, whereas others will be less likely to accept these higher costs.
- Research: Certain consumers won’t require research as they will know which make and model of electric vehicle they want without researching, while others will research considerably before their purchase to get the features they want or need.
Electric Vehicle Lending: Forecasting Auto Finance Trends
Americans bought about half a million vehicles that are fully electric in 2021. Vehicle lending forecasts from research firm AutoPacific show this will likely reach 700 thousand in 2022, with big increases set for the next five years. As sales of electric vehicles surge, financing of these sales has also doubled. Though Tesla and its financing partners dominate the market for Teslas, third-party lenders can still break into this and other markets by offering additional services to consumers.
Driving these increased sales and the lending resulting from them are factors that include an increasing knowledge about electric vehicles among consumers. The growing variance in electric vehicle makes and models, price ranges, increased range, greater availability of charging infrastructure, and environmental reasons all contribute to this burgeoning market.
Auto lenders can also finance necessities like home charging stations, further growing their portfolios. The potential for added services goes well beyond loans and auto-related services too. While certain credit card issuers provide cash back on gasoline purchases, some are now offering similar incentives for charging at public electric vehicle charging stations. Though no affinity credit card associated with electric vehicles is yet available, this may just be a matter of time.
Other marketing opportunities are also available, such as the Aspiration Zero credit card promoting environmentally friendly spending. One Washington credit union even offers 100 percent financing for electric vehicle buyers while also making available insurance coverage for breakdowns and other services. Fintech is even getting involved with software apps under development that keep track of battery health, cost savings, tracking the reduction in carbon footprint, and other factors relevant to owning an electric vehicle.
Digital Technology & Electric Vehicle Lending Forecasts
As consumers become ever more accustomed to digital technology, auto lenders also need to take note. As part of a broader disruption in the auto industry, digitalization doesn’t just apply to electric vehicle lending. Forecasters predict widespread digitalization will continue to make inroads throughout the auto finance industry. Consumer auto lenders need to anticipate these trends and respond to these new challenges to stay competitive. Yet within these changes, lenders still need to consider regulatory issues as well as meeting consumer demands.
A Digital Auto Lending Future
Whether it’s gas-powered, hybrid, or all-electric, vehicle lending forecasts firmly show the future of auto-buying is going digital. No longer are dealerships the first step for a motor vehicle purchase. Consumers, especially those who’ve grown up with social media and mobile devices, now have different perspectives. Today, vehicle purchases begin online, with consumers researching brands and prices while also securing financing before they even step foot on a dealer’s lot.
This digital revolution will continue to provide a growing number of automated options like self-service and remote purchases of automobiles. For lenders, it will enhance workflows, enabling quicker processing and better risk management. These services will largely be provided by third parties, including fintech companies that understand the auto lending industry. Fintech companies will help lenders streamline their processes to provide more flexibility and quicker service to their customers, the results of which will increase the market share of those who adopt digital technology most effectively.
For any auto loan applicant, documentation is an essential part of the process, particularly if the vehicle purchased is electric. Vehicle lending forecasters see an increasing use of electronic documents to improve efficiency, expand transparency, and moderate risk in the lending process. This will increasingly include digitally signed e-contracts. Digitalization of documentation will decrease the time it takes to process an auto loan while also empowering lenders by connecting them with partners who can assist them in this digital environment.
Protecting Against Cyberattacks
As with other financial institutions, the digitalization of the auto lending industry also means more attention will need to be paid to protecting their customers’ data against cybercriminals. In fact, the recently amended Gramm-Leach-Bliley Act has included provisions in its Safeguards Rule that require all financial institutions, including consumer lenders, to develop, implement and maintain systems that keep customer information secure. This means consumer auto lending companies must encrypt all digital loan documents containing customer information to meet the legal requirements.
Potential Hurdles & Supports in Electric Vehicle Lending Forecasts
A few other factors look to affect current electric vehicle lending forecasts as well. One of these includes a potential reduction in vehicles used for personal transport, especially in urban areas. With the growing emphasis on transportation with low or zero carbon emissions within large cities, options like bike lanes, public transit, and even walking paths will make meeting electric vehicle lending goals difficult, particularly in areas with high population densities.
However, corporations and governments are also making their fleets more electric. Vehicle lending forecasts suggest that this trend will likely continue, with state governments throughout the United States adopting procurement policies for agencies to purchase electric vehicles in order to achieve a certain percentage within their fleets by specific dates. Additionally, utilities like the Atlanta-based Southern Company and the primary electricity supplier for Southern California, Southern California Edison, have looked at how they can support this decarbonization process.
Meanwhile, rideshare companies like Uber and Lyft have looked into how they can adapt to decarbonize their vehicle fleets. As these companies require maximum uptime to achieve profitability, they’ll need to invest in fast-charging technology, making it readily available to their drivers. This will undoubtedly become even more of an issue as driverless electric vehicles begin to supplant those with human drivers.
Additional strategies are also likely to bring more electric and low carbon vehicles onto the roads, with state pilot programs that promote electrification. Governmental loan-loss guarantees, vouchers available for lower-income consumers, and rebates on electric vehicle purchases are all being promoted as ways to increase electric vehicle purchases and lending further. As with conventional vehicles, auto lenders will profit off these and other incentives for purchasing electric vehicles.
defi SOLUTIONS offers a total solution for a lender’s complete loan or lease lifecycle. Partnering with captives, banks, credit unions, and finance companies, defi’s market-leading solution helps lenders exceed borrower expectations for both conventional and electric vehicle lending. Forecasting an increase in digital engagement throughout the lending process, defi sets new standards for flexibility, configurability, and scalability. defi SOLUTIONS has the backing of Warburg Pincus, Bain Capital Ventures, and Fiserv. For more information, contact our team today or register for a demo.