Financing the switch to EVs
The transition to electric vehicles (EVs) is both necessary and inevitable, but how can motor finance help the changeover, and what will the post-EV industry look like?
ndependent leasing company Ogilvie Fleet has just launched an EV database to give drivers the information they need when choosing an EV. The data includes all 132 electric cars on the market and is freely available for fleets, company car drivers and consumers.
“New technology can be daunting and not surprisingly drivers have questions that they need answering, to make sure an EV fits in with their current motoring needs,” explains Nick Hardy, sales and marketing director at Ogilvie Fleet.
“Drivers want business as usual for their motoring needs rather than risk opting for an EV and compromising their personal mobility. We couldn’t locate a comparison tool that suited our needs; therefore, we developed a database that brought together information from multiple sources to give drivers an informed choice.”
“EVs are a new concept for most organisations and so finance companies need to answer questions and provide information to educate drivers, particularly around charging and maintenance,” agrees Kit Wisdom, operations director at salary sacrifice vehicle provider Tusker.
Indeed, one of the most popular questions drivers have asked Ogilvie’s database is “How long does a car take to charge?”
Tusker recently announced that the company had become a net contributor to the environment, beating its annual carbon neutrality target by 10% following 11 consecutive carbon-neutral years. Drawing from the experience, Wisdom argues that the salary sacrifice model is uniquely suited to driving the electric vehicle switchover.
“EVs are a new solution and salary sacrifice works extremely well because all insurance and servicing costs are included in a single monthly amount,” Wisdom says. “It has been supported by the government to work with EVs in mind as the BIK is low, even though the capital price of EVs is generally high.”
Transitioning to EVs is not a choice given both the 2030 deadline on the sale of internal combustion engines and the reality of rising transport emissions generated over the past 20 years. It is a complex and challenging process, and customers have many concerns. But as Richard Jones, MD of motor finance and leasing at Lloyds Banking Group, points out, the change also presents huge opportunities.
“At Lloyds Banking Group we lease cars through Lex Autolease and finance them through Black Horse – 1.1 million cars on the road today are leased or financed through our business so ensuring the transition is as smooth as possible is essential,” he insists. “As a group, we are well prepared for the transition from ICE cars to electric vehicles, but it will need the government, as well as the energy and motor industries, all to work together to ensure that we have the confidence of the public as we make the transition.”
However, as Hardy points out, while the transition is in some ways a revolution for the second, in others, the business of motor finance will remain unchanged.
“We are still funding a depreciating asset over a fixed period, albeit with batteries rather than a petrol or diesel engine,” he points out.
Nick Hardy, sales and marketing director, Ogilvie Fleet
Driving the change
While the change is inevitable, for it to happen quickly and smoothly motor finance plays an important role, primarily as a point of contact able to educate customers.
“Training internal customer service and sales staff to answer customer questions is vital,” Wisdom says.
“Providing awareness and education tools will speed up the transition to EVs,” Hardy agrees. “This is another reason we launched our EV database as it helps drivers make their own choice on which EV best suits their needs.”
Beyond education, the other great challenge the EV transition demands is the establishment and consolidation of charging infrastructure.
“Charging anxiety is still an issue with many drivers and any actions, so the industry has a responsibility to do anything it can to build consumer confidence in EVs,” Wisdom tells us.
It is expected that there will be 25m battery electric vehicles on UK roads in 2035, and they will need 390,000 public charging points to service those vehicles.
Jones warns against underestimating the scale of the challenge.
“Over the next decade the economy will experience the biggest transformation we have seen for generations,” he says. “We will need to fundamentally change almost all aspects of our lives – from the food we eat, the way we heat our homes, where we work, what we wear and what we drive.”
The used market will be key to fully establishing EVs within the motor finance sector
Jones insists this is an exciting challenge where motor finance can play a central role, working with government, car dealers, manufacturers, power providers and infrastructure constructors to identify the policies, technology and infrastructure that is required to transition to a green economy.
“It also involves helping customers and corporate clients with the products and services, such as charge point installation, customer help tools and finance solutions to encourage EV adoption,” Jones says.
Indeed, Lloyds itself has installed 70 EV charge points across 30 of its office locations.
As well as having a vital role to play in the transition, it also faces lenders with new challenges, such as significant residual value uncertainty.
“This is being driven by technological, regulatory and market risk and without government support, this may lead to higher monthly payments for customers looking to lease or finance a new EV,” Jones points out.
“If zero-emission vehicles remain expensive to lease or finance on the new market it will impact the development of the second-hand market which I see as critical to providing market access for people who cannot afford a brand-new electric car.”
Hardy also points to the second-hand market as critical to the future of EV but is optimistic.
“The used market will be key to fully establishing EVs within the motor finance sector and providing the confidence to underwrite them with healthy residual values,” he says. “Hybrids have already established themselves in the market in just two to three years, which shows that the used market is becoming more accepting of low- and zero-emission cars.”
At the same time, Wisdom reminds us EVs will not be the only path to zero emissions.
“As the government delivers on its 2030 emissions ambition it will also involve hydrogen fuel cell technology,” Wisdom says. “Our long-term zero-emissions future will involve hydrogen, and in recent weeks we have seen new hydrogen cars and vans already being announced by vehicle manufacturers.”
Kit Wisdom, operations director, Tusker
A seismic shift
Whatever that final mix looks like, we can be certain that the market, and the industry, is going to undergo a seismic shift.
“For the sector, the mix of vehicles on the road is going to change dramatically over the next decade so the ability to accurately forecast future values for both new EVs and used ICE vehicles will test finance companies until at least 2035,” Jones says.
“Despite these challenges, the transition to more environmentally friendly vehicles is crucial. Creating a greener future and it can only be a positive thing for the sector, the UK and the planet overall.”