June 20, 2024

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EV residual values concern auto lenders

Consumer hesitancy over outright purchasing of EVs is part of why lease levels are so high, according to Alex Yurchenko, senior vice president of data science at Black Book, an analytics and insights company that helps auto lenders stress-test their portfolio for industry changes such as a recession or widespread electric vehicle adoption.

“Everyone expects lease penetration to be very high with electric vehicles at the beginning, much higher than we expect for luxury vehicles,” Yurchenko said. “That brings more risk to the captive.”

That’s because leasing is more expensive for automakers to incentivize, and for that reason, go-to-market strategies will vary among the captive lenders depending on the types of EVs they’re likely to finance, Yurchenko said.

Nonluxury brands are more likely to go for volume, he said, which means more emphasis on leasing incentives to increase penetration. Luxury brands will prioritize profits, and strategies will revolve around targeting the right customers at the right prices.

“For the mass markets, it’s a relatively new product, and leasing is one way to get that new product,” Yurchenko said. “We still have about a $10,000 premium for the EV compared to similar gas vehicles, in the current generation. To get to that mass market, that gap has to come down.
“People are not going to be paying that much extra for a similar vehicle.”

There’s a lot of work to be done for auto lenders, which need to determine factors such as pricing, what additional options and features the vehicles should be customized with and the mix of financed and leased vehicles in their portfolios before going to market.
But there are reasons to be optimistic about today’s EVs, Falotico said. The new generation of electric vehicles get up to triple the range of those a decade ago, potentially increasing their resale value down the road. The new Ford Mustang Mach-E, for example, gets up to 300 miles on a charge, she said.

“Increased battery range and the rollout of charging networks like we have done are showing a positive relationship to residual value for EVs,” said Falotico, former CEO of Ford Motor Credit and a past chair of the AFSA Vehicle Finance Division.