Lenders can improve their underwriting programs for electric vehicles by considering the vehicle itself — along with traditional credit risk metrics.
Spring Free EV, for one, identified best practices for assessing risk beyond credit scores as it was building its own EV-specific underwriting engine. The fintech, which rents EVs to fleet management companies and charges monthly and per-mile fees, considers data that EVs can provide, along with location, type of vehicle, market characteristics and the customer’s credit health when underwriting a lease agreement for fleet management customers.
“Charging infrastructure, geography, seasonality and battery: Those are all things to pay attention to, particularly when you’re looking at it from a lending perspective,” Tenni Theurer, co-founder and chief product officer of Spring Free EV, told Auto Finance News. “Geography and seasonality matter; weather patterns determine whether EVs are rented out.”
EVs are not rented out often in Arizona during hot summer months, for example, largely due to concerns about battery degradation and lifespan, she said. Similarly, EVs parked in garages during cold weather may also fare better than EVs left out in the elements.
“This is why our financing model is usage-based; it really depends on the use of the vehicle,” Theurer said. “If the vehicle isn’t getting used, then it’s a lower cost. If it’s higher usage — particularly in certain months where rental cars are high — then it’s going to get used a lot more.”
Spring Free EV’s lease program allows for high-mileage usage with unlimited miles, according to the company’s website.
Auto lenders should also consider risk factors related to the vehicle setup, such as whether the car includes a key or allows for remote controls such as unlocking or locking the car, Theurer said.
“Some of the management of vehicles by our fleet managers is done completely digitally: Send a photo of yourself next to the vehicle,” she said. “Also being able to remote lock or unlock after somebody tells you, ‘I’m at this vehicle.’”
EVs offer the ability for data-driven capabilities, such as eventually being able to show consumers where the nearest charging station is, Theurer said.
“With telematics and location data, you can safeguard the asset more reliably on an individual vehicle basis that scales a lot broader and wider than for a traditional [internal combustion engine] vehicle,” she said.
The Big Wheels Auto Finance Data 2023 report, the only tabulation of the top 200 auto lenders by outstandings, is available now.