UNDERSTANDING ELECTRIC VEHICLE LENDING MARKET SHARE FORECAST FOR LENDERS’ GROWTH POTENTIAL

The defi Team Auto Dealers, Automation, defi INSIGHT, Digitalization, Loan Origination Software, Simplifying Processes, Technology, Trending Buzzwords

The Electric Vehicle Lending Market Share Forecast for Lenders’ Growth Potential

The quickly growing market for sustainable personal transportation is also driving more electric vehicle lending. According to a report by Experian, market share in this segment of the auto financing sector grew to 4.56 percent in the fourth quarter of 2021, from 2.25 percent for the same period in 2020. The growth potential for this nascent lending market has never been better, with governments worldwide collaborating with lenders to get more electric vehicles on the road. 

As electric vehicle technology has advanced, other complementary technologies have facilitated auto lending. Fintech being used by auto lenders for both conventional and electric vehicles has adopted artificial intelligence (AI), machine learning, cloud computing, and data analytics. These technologies enable lenders to increase market share while also providing their customers with additional services. As these digital tools are integrated into lenders’ businesses, consumers will be able to receive personalized offers that will improve their experience throughout the duration of an auto loan.

By providing these end-to-end fintech solutions, lenders will more easily be able to capture more of the emerging electric vehicle lending market, shares of which look to be supported in the United States by both federal and state governments for decades to come. In fact, a May 2021 report on the electric vehicle market saw the Lucid Group reveal a new digital platform that would make the process of obtaining finance more seamless. These technological advancements show how fintech providers and electric vehicle lenders are coming together to make auto financing faster, easier, and more flexible. 

Electric Vehicle Lending: Market Share and Why It Matters

In the United States, banks financed 55.7 percent of electric vehicles compared with a 31.8 percent share of the overall auto lending market. This is partly due to Tesla’s partnerships with major banks, though credit unions have been aggressively pursuing this market as well by offering lower interest rates on electric vehicle loans. 

Banks, credit unions, captive finance companies, and other lenders are seeing the importance of this growing market. Yet this lending segment isn’t just about electric vehicles. It will enable the financing of charging stations and other related services as well. 

Why Electric Vehicle Lending Market Share Matters for Dealers

The way in which consumers finance automobiles in general is changing, and auto dealers need to take note. This is especially true for electric vehicle lending. Market share is moving away from traditional brick-and-mortar dealerships and towards online digital platforms, which consumers are using to initiate the process of buying an automobile. 

As an example, Bank of America reported that its digital platforms saw an increase of 21 percent in auto financing online in 2020, with a further increase of 18 percent in 2021. This grew online initiation of auto loans for the bank to 77 percent.

While electric vehicles are considered the future of personal transport, however, dealers are additionally experiencing their own difficulties with this transformation. Salespeople at dealerships find that selling an electric vehicle involves triple or quadruple the time it takes to sell vehicles with internal combustion engines. 

This is often due to a lack of knowledge. For this, there is a simple solution. By training salespeople about the advantages of an electric vehicle, lending market share will increase along with sales. 

Dealers will need to train their salespeople to:

  • Understand the basics of charging, driving, maintaining, repairing, and storing electric vehicles. 
  • Recognize how extreme conditions can affect battery life. 
  • Learn about tax credits, rebates, and other incentives offered, which essentially make prices comparable to gas-powered vehicles. 
  • Know what federal, state, or regional incentives apply to specific electric vehicle purchases. 
  • Identify the type of charger a particular vehicle needs and how it plugs in. 
  • Know trade-in values related to various electric vehicles.
  • Comprehend how to use the vehicle’s technology.
  • Be familiar with the ranges of the electric vehicles they sell. 
  • Be acquainted with issues about battery size and how many kilowatts it can store. 
  • Ascertain differences between models from different automakers to make a comparison, particularly for dealerships that sell multiple brands. 
  • Answer questions on how much the consumer’s electricity bill is likely to rise. 

While dealers understand the financing of conventional vehicles, most don’t yet realize the nuances of electric vehicle lending. Market share will increase with better sales staff training, and there’s plenty of room for growth. By educating dealers and their salespeople, they can then educate their customers, speeding sales of electric vehicles. Meanwhile, consumer attitudes are quickly evolving on their own. 

Changing Consumer Attitudes

As knowledge of climate change grows, consumers recognize how electric vehicles can help mitigate their carbon footprint. A Consumer Reports survey shows the vast majority of Americans with driver’s licenses agreed that electric vehicles would slow climate change and reduce air pollution. 

Additionally, according to a Pew Research survey, 39 percent of Americans are either very or somewhat likely to buy an electric vehicle. Lending market share for these vehicles needs to catch up with these consumer attitudes, as currently, automobiles powered by electricity are less than 2 percent of all vehicles sold in the United States. 

Why Electric Vehicle Lending Market Share Matters for Lenders

As electric vehicles become more mainstream, financing them will become more common too. Lenders can take advantage of these new markets, which look to go well beyond loans for personal vehicles. Financing whole fleets of buses for school systems, trucks and commercial vehicles for businesses, government vehicles, and charging stations will add new markets for lenders. 

The electric vehicle financing market is dynamic, with savvy lenders looking at ways to expand and cut costs through various third-party partnerships, mergers, acquisitions, joint ventures, and expanding their territories in both physical and digital realms. The digital technology that’s taking over auto finance generally will also allow lenders to extend their reach into the electric vehicle lending market. Shared opportunities will abound as well, with third-party fintech applications adding to the borrower’s experience.

With new digital technologies, lenders will be able to:

  • Speed up and otherwise enhance the loan application process.
  • Provide more auto-related and other services.
  • Predict with increasing accuracy which borrowers are likely to default.
  • Offer customers refinancing opportunities that reduce loan terms, diminish interest rates, and lower monthly payments. 
  • Enable 100 percent financing.
  • Deliver dedicated customer support. 
  • Analyze consumer and other data.
  • Allow 24/7 access to loan accounts online via mobile devices.

Though it’s growing rapidly, the market is fragmented for electric vehicle lending. Market share is shifting, with both seasoned and new players competing for territory. Because of this competition, lenders must be innovative and adopt strategies that give them a strong foothold in the market. For this, digital solutions are a crucial factor. 

As changes are afoot in the electric vehicle lending market, shares of manufacturing are looking to shift as well. As the biggest producer of electric vehicles worldwide, Tesla has dominated the market, though this may soon change. According to a Bank of America analyst, Tesla’s share of the electric auto market will fall from 70 percent to 11 percent by 2025. 

As Tesla loses market share, so too will the banks financing electric vehicles. While Tesla has relied on big banks to finance consumers buying their products, these large companies won’t continue dominating the electric vehicle lending market. Instead, shares of this market segment will soon face increasing competition from more nimble challengers, who will utilize digital means to capture more of the market.

Getting Started

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 conventional and electric vehicle lending. Market share for electric vehicle auto loans continues to expand, and defi wants to provide the flexibility, configurability, and scalability in originations and servicing (by your experts or ours) to allow lenders to take advantage of this evolving sector. defi SOLUTIONS has the backing of Warburg Pincus, Bain Capital Ventures, and Fiserv. For more information, please visit www.defisolutions.com.

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