Manufacturing lines aren’t the only thing getting an upgrade when it comes to electric vehicles (EVs). In addition to figuring out how to actually build them at a price point that is accessible to all income levels, carmakers also have to adapt to changing consumer preferences for online shopping, or digitalisation, as families, individuals, and businesses alike increasingly expect to be able to compare, finance, and ultimately purchase their EVs at the click of a button.
As is the case with most things related to EVs, Tesla has ushered in this new standard for online car buying. A digital process no doubt creates a better user experience that is faster and easier to navigate, but its impact on vehicle financing, in particular, requires that carmakers and traditional lenders completely reimagine the way they attract, retain, and deliver value to their customers.
EV loan rates need to account for the various available local and federal tax incentives and rebates
Before the pandemic and rise in EV popularity, consumers had become accustomed to a fairly standardised car buying process. Buyers would usually first visit a handful of dealerships, browse the inventory, and then take a car or two out for a test drive. Once they’ve found the car that’s right for them, and managed to successfully negotiate a price with the car salesperson—an often dreaded and belaboured process—a purchase is made and financing options are provided by the dealership.
Meanwhile, the purchasing experience for EVs is uniquely different. EVs have a distinctive supply chain where the vehicles are more or less “pre-sold” before ever even making it off the production line. From comparing brands and models to pressing order and receiving financing, the EV buying journey begins and ends online.
It is important to keep in mind that EVs and gasoline-powered cars are entirely different assets, and the calculations used to finance each should reflect their distinct attributes. This new paradigm opens up opportunities for financial innovation that not only makes the entire car buying process easier, but that can also help more people afford EVs and increase adoption.
First and foremost, EV loan rates need to account for the various available local and federal tax incentives and rebates. EVs also retail value better than their internal combustion engine (ICE) counterparts, boast lower maintenance costs, and their batteries offer the opportunity for a second life after serving their vehicles. The fact that EVs are essentially computers on wheels gives them another financial advantage over ICE cars: they’re constantly getting over-the-air software upgrades to improve performance and reduce depreciation over time. Together, these considerations reflect the need for a new set of calculations for EV loans, separate from ICE vehicles, that is more accurate, affordable, and attractive for those considering a purchase.
Economy-wide, there is a clear shift towards online lending. Companies like Rocket Mortage, for example, have found great success through digitalisation, offering home mortgages from the comfort of one’s living room. The opportunity for reduced EV financing rates, as well as the momentum behind the digitalisation of the car-buying experience, combine to set the stage for a major uptick in EV adoption. Federal and local targets to increase EV adoption cannot be met without addressing the key hurdle of affordability, and the evolving EV financing landscape not only reduces costs, but also increases accessibility. While digital financing technologies are not necessarily new or novel, they are de-risked to a point where traditional car loan lenders, like OEMs and car dealerships or banks and credit unions, risk falling behind if they don’t embrace financial innovation. As EVs continue to showcase their latest innovations, its thrilling to be witnessing the auto financing industry evolving alongside it.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Alex Liegl is the co-founder and CEO of Tenet
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