We’ve all heard that sales of electric vehicles (EVs) have slowed over the past few months. While General Motors, Rivian and Toyota recently posted upbeat EV deliveries for the second quarter, EV manufacturers still face a bumpy road ahead. Demand for EVs has grown more slowly than expected due to high borrowing costs, economic uncertainty and consumer preference for gasoline-electric hybrids.
So, I was really interested to learn what some lenders are doing to boost their EV market share. In oil-focused Oklahoma, Tinker Federal Credit Union is offering EV buyers a 0.25 percent reduction in loan rates on both new and refinanced vehicle loans, with no prepayment penalties. In a post on its website, the bank encourages customers to “get behind the wheel of [a] green vehicle and enjoy better fuel efficiency, less pollution and lower loan rates.” This approach is in direct opposition to other lenders who are charging higher interest rates for EV loans.
According to research from the University of Pennsylvania Wharton School of Business, EV buyers face tighter financing terms compared to those who purchase conventional vehicles. EV auto loans are financed with higher interest rates, lower loan-to-value ratios, and shorter loan durations. Lenders tend to price in the risks they perceive in obsolescence caused by rapid advances in EV technology, leading to a steeper depreciation in value and reduced resale value.
Now I know change can be difficult, but pricing in risk for EV technology not only hampers progress, but it also automatically alienates potential customers and negatively impacts potential profit for lenders. This strategy also seems to run counter to the rest of the automotive supply chain that has gotten behind subsidies to accelerate the adoption of EVs.
For example, taxpayers who buy an eligible vehicle may qualify for a federal tax credit of up to $7,500, according to a Department of Energy note. That breaks up into two credits of $3,750 each for vehicles that meet the critical mineral requirements, and those that meet the battery component requirements; vehicles meeting both conditions are eligible for the total tax credit of $7,500. Various states also offer their own incentives to boost EV adoption; the DoE periodically publishes updates on state-level incentives for EVs.
Getting on Team EV
Despite the cooling interest in the EV market, there is still plenty of opportunity for profit. According to J.D. Power, consumer interest is strong, with nearly one-third of all consumers saying they are ‘very likely’ to purchase an EV for their next vehicle. But at the start of 2024, affordable EVs were few and far between. The Big Three automakers have taken on this challenge, announcing new, affordable models including an increasing number of SUVs and pickup trucks.
Here is a chance for your credit union to get a big slice of that consumer interest by proactively marketing to those consumers who want to purchase a vehicle but don’t want to pay the higher interest rates.
- Green auto loans – recognizing that there are some upfront costs to purchasing an EV, offer a green auto loan that includes a lower interest rate, special discounts for charging infrastructure upgrades (can you say home improvement loan!), and special financing terms.
- Incentive education – be a resource on the available incentives including cash rebates and government tax incentives.
- Specialized EV protection products – speaking of technology changing, standard consumer t products don’t work for EVs. Make sure you have the right products and use them to build confidence with your EV buyers.
Remember, the US saw a 60 percent year-over-year increase in EV sales between 2022 to 2023. Be the leading lender for EVs in your area and capture that lucrative revenue. Our proven team of EFG experts are here to help. We bring years of experience to your team. At EFG Companies, we’re your business partner and a valued resource to your credit union. Contact us today to learn more about how our team can help you achieve your goals in the automotive space.