During Super Bowl Sunday, 102 million consumers across the country tuned in as Audi AG, General Motors, Ford Motors and Porsche AG spent millions of dollars to produce flashy commercials touting their new battery electric vehicle lineups.
This year’s Super Bowl LIV had the highest number of EV–related ads ever run during the big game’s live broadcast. By comparison, the 2019 show had 98.2 million U.S. consumers were exposed to one 60–second commercial about the all-electric Audi e-tron SUV.
Further, more than 100 new battery electric vehicle models are anticipated to hit showroom floors by 2025 as OEMs — both domestic and global — are expected to invest a total of $300 billion in the EV market, according to published reports. For perspective, the amount of cash the auto industry plans to invest in the potential boom of the electric vehicle is higher than the GDP’s of Finland and Vietnam.
However, history has shown that the massive investment by OEMs to increase supply in EV inventory has fallen flat compared with consumer demand. Despite battery EV sales consisting of only about 2% of the 17.1 million new vehicles sold in 2019, OEMs are urging lenders to keep the potential rise of EV sales on their radar.
Ford Motors has identified EV financing as an opportunity for financiers to collaborate with their OEM partners better.
“Financing is not only important, but it’s also imperative,” said Joy Falotico, president of The Lincoln Motor Company and chief marketing officer at Ford Motor, during an industry conference last month. “Right now [EV] volume is low,” she said. “But what happens when we get to that takeoff point, and it becomes 30% or 40% of the business?”
In that light, there is an opportunity for auto financiers to drive EV market share by innovating their marketing strategies to help further their OEMs’ ambitious EV goals.
VW Credit Inc., for one, is zeroing in on protecting their partners’ — both the OEM and dealer network — investments in EVs.
“Our mission is to support our brand partners through the service and the expertise we provide, which helps enable the brand to be successful in the new world of EVs,” Mike Meyer, senior vice president of sales at VW Credit, told Auto Finance News.
With technology enhancements bringing down the prices of batteries, greater investment in charging infrastructure, and more OEMs lowering the costs of their EV models to attract the masses, financiers could play a vital role in the industry’s push to get more consumers into electric cars.
All eyes on the captive
Late last year, Chief Executive of Volkswagen Group Herbert Diess announced the OEM would “step up the pace” with its investments in electrification, digitalization and hybridization. Between 2020 and 2024, the OEM will invest $36 billion in its electric mobility efforts alone, outpacing the $29 billion investment in hybridization and digitization. By 2029, the OEM plans to introduce up to 75 all-electric models to the market.
As the captive finance arm of Volkswagen Group, VW Credit will play an “important part of the overall Volkswagen Group strategy as it relates to EVs,” Katie Boothroyd, head of internal communications at the captive, told AFN.
In fact, VW Credit — which boasts a $25 billion portfolio, according to Big Wheels auto finance data — has a three-pronged strategy to prep for an electric vehicle future.
First, “[VW Credit] will co-develop the retail programs to position the car for the millions, not just the millionaires,” Boothroyd said. “Next, we will co-create and administer the reservation platform, where dealers and customers will begin their EV journey.”
Finally, VW Credit and Volkswagen Group have a remarketing plan in place to properly position their EVs are for second owners, as “Remarketing is the responsibility of both the captive and the OEM,” according to Boothroyd. “We plan to implement a remarketing strategy that maximizes the value of the vehicle, which will in turn protect the residual of the next new EV sold.”
Ford Motors also has a bold investment strategy when it comes to all-electric vehicle development: It will put down $11 billion to develop 40 new all-electric and hybrid models by 2022, Chairman Bill Ford said during the North American International Auto Show in Downtown Detroit in 2018.
Ford’s captive, Ford Credit, is working with Team Edison, the group tasked with developing Ford’s lineup of EVs, to make sure the captive has a full range of financing choices for customers, spokeswoman Margaret Mellot told AFN.
“Customers will be able to choose traditional financing or a product that gives them control of what they do with the vehicle at the end of the term, and of the federal tax credit. We’ll have more details to share in the future.”
Toyota Financial Services’ OEM was the first to mass-produce a fully hybrid electric vehicle in 1997; the Toyota Prius has since been mainstreamed by consumers, and TFS will continue to base its strategies on hybrid vehicles, Mark Templin, president and chief executive of TFS, told AFN.
Toyota’s U.S. sales across all of its hybrid vehicles are up 26.3% year over year, reaching 230,889 units sold. The Toyota RAV4 was Toyota’s highest selling hybrid model last year, with sales up 92.3% YoY. Meanwhile, the Lexus division’s hybrid sales have shot up 43.1% YoY to 43,661 units sold, marking the “best year” for hybrid sales, according to the OEM’s December 2019 sales report. Long term, TFS is preparing for a future of full battery EVs, too.
“We have a lot of research–and–development efforts going into electrification, especially for markets like China and parts of Europe, where [different] regulation will drive the adoption of those vehicles much faster,” Templin said.
But in the U.S., battery EVs are still a tiny percentage of the market. “So, when the time’s right, we’ll be prepared,” Templin said. “But for now, our electrification strategy hinges on growing our hybrid business and plug-in hybrid business in a big way.”
Still, the captive is on board with financing different types of EVs like Toyota’s Mirai, a hydrogen fuel cell electric vehicle that charges in five minutes, he noted.
“What we have, in essence, is an electric car where you make the electricity instead of plugging in and getting electricity from a different source,” Templin said. “We’ve been doing that for a few years now, and a second-generation Mirai is coming out, and will be released in big numbers. So we are getting experience in that space as well.”
As financiers make strides to invest in their OEMs’ EV goals, one of the biggest hurdles, however, is as simple as basic economic principles: supply and demand.
Supply and demand is the relationship between the quantity of a commodity producers wish to sell at different prices and the amount consumers want to buy. The challenge with EVs is that OEMs cannot “manufacture demand,” said Rich Alton, director of emerging research at the Clayton Christensen Institute.
EVs are likely to remain a “premium product” until the industry can drive prices low enough to achieve near parity with gas-powered vehicles, according to Alton. “The most competitive EVs are the ones at the premium end of the market,” he said. “Long-range vehicles between $45,000 to $60,000 are the ones that are getting the most volume. Notably, the Tesla Model 3.”
The Tesla Model 3 Long Range, with an extended driving range at 310 miles, has a sticker price of $49,500, according to Tesla’s website. By comparison, the standard model starts around $39,990, and has a 240-mile range. Still, there are only so many people in the world that can afford that price for a car, Alton said.
“Since most of the EV models coming to market this year and in the near-term are priced in that premium range, we think there’s probably going to be some shakeout with many subscale models that come into the market and manufacturers are going to be a little disappointed in the volumes they’ll see on a per-model basis,“ Alton noted.
Ultimately, OEMs and lenders will have to “fight hard” to establish their EV brand and financing options for consumers, he said.
Ally Financial, too, noted an industrywide supply–and–demand imbalance on the EV front. “We’ll be ready either way,” Doug Timmerman, president of auto at Ally, told AFN. “We don’t feel like we have to be ready tomorrow because of supply and demand, and we have price-sensitive and payment–sensitive customers.”
While EVs are “important optionality” for consumers, Timmerman noted, pricing hurdles are tough to ignore. However, if OEMs have a hefty supply of EVs coming to market, less demand could potentially bring prices down, he said.
Still, Ally is aware of the many other obstacles OEMs face in mainstreaming EVs. “The industry has to get to the point where you can power that vehicle faster,” Timmerman said. “You also need the infrastructure for [charging stations] everywhere. And there’s the question of, does the consumer really want it?”
Regardless of the supply–and–demand imbalance, the F&I office needs to be prepared for the moments that consumers are interested in EVs, and a way to keep dealerships’ financing managers ready is with leasing options, Mark Manzo, president of Ally Insurance told AFN.
“On the [F&I] side, we are very interested in EVs,” Manzo said, noting that even if leasing for EVs isn’t big in volume, it’s very specialized. “It’s pretty interesting trying to figure out what’s the right [insurance] product for these parts because there is not as much breakdown.”
As a result, Manzo expects there is an opportunity for the F&I office, from a maintenance perspective. “Once the EV gets beyond the warranty, the real question is the battery,” he said.
Technology advances have helped drive down the prices for the most expensive part of an all-electric vehicle. Battery prices are getting cheaper by about 15% YoY, said Joel Levin, executive director of nonprofit EV consumer advocacy group Plug-In America.
“In terms of batteries, the pace of change has picked up nicely,” Levin said. To that end, the industry needs to focus on having enough charging stations, especially for the consumer wanting to embark on a road trip, said he added. “Consumers know that during a road trip, every 30 miles, there will be a gas station; we need that with EV charging stations. Tesla has its proprietary charging network, but that’s only Tesla.”
From 2009 through 2013, the U.S. Department of Energy invested in nationwide charging infrastructure, installing 18,000 residential, commercial and public chargers across the country. To date, the total number of charging stations installed by OEMs and other private companies, is roughly 8,000, according to the department’s website.
It is essential for financiers to promote the developments in charging infrastructure by the OEMs, said Kevin Klowden, executive director for regional economics and managing economist at the Milken Institute.
“We will likely see EVs take off in the five-to–10-year range,” Klowden said. “The only reason you can’t convincingly argue EV adoption sooner is that it’s hard to find companies rolling out the infrastructure.”
Nissan Motor Co., for one, is working with “multiple EV infrastructure partners,” and has invested more than $60 million in charging infrastructure, Aditya Jairaj, director of EV sales and marketing, told AFN.
“Nissan is committed to making it easier for EV drivers to access charging, and the Nissan Leaf utilizes America’s largest public EV fast charging network,” Jairaj said. Additionally, Nissan recently launched Energy Perks, which provides buyers of its new Leaf with a complimentary charging credit of $250.
Toyota, so far, has 41 open charging stations for its hydrogen-electric Mirai model across California, with 16 more “in development,” according to the company’s website.
Volkswagen Group is working with a company called E.ON to develop a public network of a flexible, ultra-fast charging stations in Essen, Germany, the company announced last month. As Volkswagen actively invests in infrastructure, the OEM could be the company that “breaks through” and stops Tesla from having that “exclusive hold” on the EV market, Klowden said.
For VW Credit, the lender understands that “the captive is the financial and capital partner of the OEM,” Boothroyd said. “To the extent that charging stations are financed or leased, the captive can provide the best and most seamless transaction for the end user.”
Compelling the consumer
A human-centric approach is the key to getting more consumers comfortable with the EV market as the industry smooths out other hurdles.
VW Credit is working to meet consumers online. “Purchasing or leasing an electric vehicle requires that we meet consumer expectations and dealer expectations on the process,” Boothroyd said. “For example, around 14% of current EV buyers have purchased the vehicle entirely online with the dealer/store providing value-added through delivery, expert car knowledge, and value-added features that surround that experience.”
A captive can help deliver on the unique expectations of the EV buyer, Boothroyd noted. “Given that many consumers might lease their EV due to federal and state programs, we can make the process as simple and straightforward at the time of purchase and at lease end to prepare the consumer for their next EV.”
Further, VW Credit is “constantly” partnering with its brands to deliver financing and lease options for consumers and dealers, Boothroyd said. “Our focus is to understand consumer and dealer concerns, and their knowledge level of EVs to help create an informed and secure buying process.”
To that end, VW Credit is “building long-term customer relationships with our brands, which means that exceptional experiences are critical to our long-term success,” Boothroyd explained. “We are also developing insurance products to support our consumer and dealer changing needs of EVs.”
Dealer partners are top of mind for GM Financial, too, the captive’s Chief Marketing and Digital Officer Will Stacy told AFN. “In March, for GM dealers, the agreement comes out if they want to participate in the GMC Hummer EV product,” he said. “So that does require dealership enhancements.”
To that end, GMF has “launch support” for any vehicles that GM starts, and the captive will help dealers identify customers who currently have a loan or lease with GM who would be a right candidate for EVs, Stacy noted.
From a marketing perspective, GMF will leverage opportunities to market EVs to their current consumers if the car seems right for them, Stacy said. “So [a consumer] logs into GMF’s Myaccount app looking for their billing statement, if we have an opportunity to tell [a consumer] about the next vehicle that might make sense, we will do that.”
For example, “based on characteristics consumers have — if they are on the West or East Coast driving a Silverado or Sierra, and they’re looking for a more eco-friendly truck, we would target those customers in our portfolio to offer up Hummer EV content,” Stacy explained.
Even though GM’s newest electric Hummer model won’t be in dealerships until about fall 2021, Stacy said, it’s crucial to prepare for that. “We’ve got a year and a half to help educate and build up content for consumers as we release images, pictures, and details about the vehicle.”
From challenges to opportunities for growth, ultimately, EVs represent multibillions of investments by the auto industry to shape the future of mobility, said Chuck Moore, VW Credit’s chief digital officer and senior vice president.
“This inflection point in an industry happens once in a lifetime,” Moore said. ”Having a captive finance team at your side as we all move into this new territory makes the currently successful relationships even more important to the entire industry’s success.”
Editors Note: This feature first appeared in the May issue of Auto Finance News, available now.