Last week, the auto industry was ripe with news of investments in electric vehicles (EV) and their batteries. Ford Motor, for one, said it was eyeing a “closed-loop” recycling ecosystem at Cox Automotive’s EV Battery Summit on the heels of an $11.4 billion investment for two new battery and EV production plants. Battery lifecycles will likely play a pivotal role in calculating residual values of EV, which has given rise to a handful of budding technologies designed to monitor EV battery shelf life.
Meanwhile, Rivian unsealed its initial public offering filing with the U.S. Securities and Exchange Commission, which brought to light further details on its financing forecast. EV automaker Rivian in January inked a private label financing arrangement with JPMorgan Chase called Rivian Financial Services.
Specifically, the OEM anticipates that lifetime revenue for finance and insurance will land at $8,700 for consumer vehicles and $7,400 for commercial vehicles, according to the filing. Loan-to-value ratios should land around 80% and “assume a net interest rate in line with other automotive original equipment manufacturers offering captive financing.”
Rivian’s digital-first platform will serve in an indirect capacity, accepting credit applications at the point of sale and sending those contracts to Chase to underwrite, fund and service the loans. Rivian, meanwhile, will retain a commission.
In this episode of the Weekly Wrap, Associate Editor Whitney McDonald, Deputy Editor Amanda Harris and Editor Joey Pizzolato discuss the week’s top stories and what’s to come in the week ahead.
Auto Finance Summit, the premier industry event, returns October 27-29 in Las Vegas. The Summit continues to bring together the best and brightest in the industry year after year for unparalleled networking and professional education. To learn more about the 2021 event and register, visit www.AutoFinanceSummit.com.
Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.
Hello everyone and welcome to the roadmap from auto finance news since 1996, the nation’s leading newsletter on automotive lending and leasing. It is Monday, October 4. I’m Joey Pizzolato. And joining me today is Amanda Harris and Whitney McDonald. This is our weekly wrap for what happened in auto finance for the week ending October 1 2021. As always, I want to thank auto finance news, advertisers, Alfa, Cox Automotive, Cedar CX, Dealertrack, Defi Solutions, NCB, LexisNexis, Verisk, Wolters Kluwer and Westlake Financial for their continued support. In general automotive news Volvo car group is looking to raise around 2.9 billion in initial public offering to fund its shift to fully electric cars and a direct to consumer sales and subscription model. Geely holdings which is Volvo Cars largest shareholder intends to remain its largest shareholder when the first day with the first day of training plan for this year. The news comes on the heels of last week’s announcement that Volvo would invest up to 600 million in electric vehicle maker Pollstar, which gives Volvo about a 50% holding in the company. Meanwhile, on the electric battery front Ford Motor Co in South Korea based SK innovation company planned to spend 11 point 4 billion to construct three battery factories and assemble and and an assembly plant for electric for the electric f series pickup trucks in Tennessee and Kentucky is the US automakers largest investment in its history. According to Bloomberg, the project will create two sites to produce electric vehicles and the batteries that will be used in those vehicles and employ nearly 11,000 workers. Ford will flip 7 billion of that 11 point 4 billion, well, its battery partner SK innovation will foot 4.4 billion. Those plans are expected to come online in 2025. And is part of Ford’s larger plan to invest 30 billion in electric vehicles, electric vehicles by that same year. The battery question, as I like to put it is likely going to be at the heart of lenders evaluating residual values. The team and I attended Cox, automotive Evie battery summit last week. And aside from Ford saying that they were eyeing a closed loop recycling system. There were a number of budding technologies that will aid in those residual value calculations, especially as it relates to batteries. And I mean, I know you sat on that panel, what are the takeaways from that? or,Amanda Harris 02:45
um, the biggest thing is that the battery really is at the heart of everything to do with electrical Bo vehicles, as far as I know, their evaluations. Really, it’s the heart of everything to deal with EBS. And so when it comes down to is that’s what, you know, lenders, manufacturers, retailers, consumers are all paying attention to, especially as more electric vehicles come to the US market. We know it takes a little while for me to kind of, you know, get to the point of needing to get rid of those batteries. But as more and more come on board, we know more are going to be entering the US market. So there is this question of Well, how do you accurately determine, you know, like the residual values of an Eevee? How do you act to act like accurately, like measure that and evaluate these property properly? Excuse me, because what’s basically happening is they’re being sold kind of at a discount, when you look at that compared to like a similar regular combustion engine vehicle. So like their counterparts, if you look at the comparison, they’re actually being sold or traded at a discount, because a lot of this stuff is still up in the air. And again, batteries make up 30 to 40% of the cost of the car. So it really comes down to understanding, you know, the health of the battery. And that’s like the charge and the lifespan that’s left. Apparently if if a batteries that 80% capacity left is actually considered in the life on the automotive side. So they use about 20% or so to run the car and then they get recycled into other industrial uses. So because it’s such a big deal, and that’s how everything’s trying to determine with valuating use these new technologies to kind of come on board to like do diagnostic tests of the batteries both in real time so there’s a company that will have their their cars connected. We talked about connected cars on the regular side as well to the cloud, and basically it lets consumers see, you know, the health of their battery, what the charges were that kind understands, but also like if there’s a problem. So we know some of the batteries are actually made of multiple batteries. But there’s a problem with one of the cells, then they can do a software patch through the cloud, and then the customer doesn’t even need to come to the dealership. So things like that. Things also, like if you bring the car into, like, for example, a Manheim facility, because Colorado is using a specific technology diagnostic tool, and that’s through a different company. So that allows them just to kind of like quickly plug in the car 1015 minutes, they can kind of get an idea of where that battery is in its life, what the condition of the battery is. And that gives them a way better opportunity to measure that. And that, again, is going to be how they determine the value of the car and the condition of the car. When it becomes EBS. Interesting, more of that will probably come up, too, as more and more of these, especially as more affordable ones come online and more people start driving themJoey Pizzolato 06:00
mainstream. So do we have any inclination as to like how long it takes for those batteries to get to that at 80%? I’m kind of end of life.Amanda Harris 06:12
Yeah, I think, um, as far as like an average, I think remains to be seen. But for an example, the Nissan leafs that were out about 10 years ago, there was some talk of those starting to go into the recycling side of things. So those, you know, again, it’s just one example. So don’t have enough to say, any of you battery will last as long because I think you know, a lot determines that there’s different metals that they use different brands use different setups, I’ve used multiple batteries and use one like it all depends on a lot to do with the metals inside too, because those have different shelves, Vice science head on for a second. But yeah, so I think a lot of it has to be determined, but it looks like there’s there are starting to see it. And there is a market for recycling Evie batteries, it’s just pretty small right now. But the entire consensus as that will definitely change. And there needs to be infrastructure in place to deal with those batteries. Because they’re expensive, and they still have 80% of their lifespan left, when they can no longer be used in a car. So obviously, you don’t want to just throw away something with metals that have a ton of other industrial uses. That would be wasteful and expensive. So there’s multiple incentives for them to, you know, to do that going forward.Joey Pizzolato 07:33
Right, it’s really interesting, because, you know, if you look at kind of just like normal vehicle, you know, retail installment contracts, like a 10 year old vehicle is, is probably a little outside of like, our scope of vehicles that would be financed, right, like, you know, nobody not have a lender that’s going to finance a 10 year old vehicle. But if you know, if you’re if you were to take like a brand new Evie, leased for four years, then it goes to like the US market, you know, that’s still like a five year old vehicle, you know, just doing the math, if, you know, we’re well above the 60 month average on, you know, just general financing. So, I mean, you know, that 10 years could pop up and you know, a used retail installment contract that that’s going to be key. And again, I think this is why I think, you know, myself and you know, the team here is so adamant about the importance of batteries, because, you know, we can’t hit that 10 year lifespan and then, you know, lender might get stuck, you know, with a repoed vehicle or, you know, something that they that they’ve collected on but then they have to figure out what to do with and how do you value that car and you know, if it is at that 10 years, and at that at or close to that 80% shelf life or half life, whatever you want to call it, then that’s that’s a real problem that the industry is gonna have to start thinking about, you know, maybe like 20 2045 Who knows?Amanda Harris 09:00
And one thing I’m curious about and hasn’t really been answered at least in what I’ve heard is if if the battery is is done, is the car done? Or is that like a maintenance opportunity you know for dealerships to to the maintenance of batteries or replaced them or replace certain cells like there’s a service side of this too. That I think is kind of not as clear yet because Evie user still, they’ve been I mean EBS and hybrids have been around really for a while and we’re not talking about last like two years but in relative terms you know, they have they are a fairly new type of vehicle, especially like on the mainstream side. You know, you’re talking about like a few models here and there. like years ago now we’re talking about GM and you know, Ford and some of the bigger ones looking at it, that’s gonna make a big difference. So I do wonder if that’s what that will kind of mean because I know people who drive cars way older and wiser They older than 10 years. You know, we’ll just have to see how that works. be monitored for sure.Joey Pizzolato 10:07
Right, right. Definitely. Well, further down the EV rabbit hole, electric vehicle manufacturer rivian unsealed its IPO filing late Friday night. The OEM is listing the size of the offering as 100 million, but that’s really just a placeholder. Back in August, when the company first found its confidential IPO, Bloomberg had reported that they were seeking $80 billion valuation. So that’s quite a difference, right. But I think it’s probably closer to that billion dollar valuation, multiple billion dollar valuation rather than the 100 million. But, you know, we parse through the filing this morning and on Friday night, and there were a couple of insights we glean about their financing operation. As we reported back in January rubian first inked a private label part financing partnership with JPMorgan Chase called Ruby and financial services, what and so what this, what this filing is a little bit of insight into, you know, their fork reviens forecast. So, first and foremost, they anticipate that lifetime revenue from insurance and financing, to me about $8,700 per unit for consumer vehicles and $7,400 for commercial vehicles, the loan to value ratios should land at around 80% and quote should assume a net interest rate in line with other automotive OEMs offering captive financing so you know, basically that’s just you know, they’re going to be on par with with Ford, GM financial and in their in their in the sense that they have flexibility to really you know, as that as the captive really promote the sale of these these cars also, so, rivian is a taking a digital first platform, so, they are definitely not going they are going to take a indirect sort of stance in the sense that they are the retailer right? So they would be like the dealer, they pass on contracts to chase auto then underwrites funds and services all loans. However, you know, meanwhile, at the same time, reveal, retain a commission. So their direct to consumer model has drawn the like the ire of a lot of national and state automobile dealer trade groups, according to the filing, because they are not going through those traditional indirect channels, right, they’re not going to be, you’re not gonna be able to walk into a dealership and check out a rivian that’s just not a thing. But, you know, I do see it having some some similarities to this larger shift that we’re seeing other OEMs make, like Ford and General Motors towards, like a consumer build to order environment. Whitney, you had a story on that today. And I think, you know, the upshot was that captives kind of have a foot in the door, when consumers build their car from scratch. So why don’t you tell us more about that?Whitney McDonald 13:22
Yes, build to order is something that we have been following. We actually did a feature story on it in September, if you want to check it out. But build to order seems to be the shift that OEMs are taking rather than waiting for inventory. To go back to pre pandemic levels, we’re going to see lower inventory on dealer lots not to say that it’s going away. But this shift to build to order is coming and it’s staying. So as OEMs are shifting to build to order, this kind of goes into the advantage that captives have, they’re going to be picking the lenders that they use. So for example, Ford is already doing this with their Mach-E, their Mustang Mach-E, you can purchase the vehicle through Ford Motor, and then they have you do the financing through Ford Motor credit. So in order for a lender, indirect lenders to kind of keep up with this, they are being kind of challenged to upgrade their digital capabilities, and prove that, hey, we have skin in the game. And we can we can offer these and do these just as seamlessly as the OEMs captives can. So that is what we’re following. We’re going to continue following the shift to build to order like we have been, but like I said, it’s it’s here to stay.Joey Pizzolato 14:33
Right, right. And I would think, you know, for these non captive lenders, I would think, you know, some of these passenger agreements that, you know, like global lending Services has with Nissan Motor acceptance company. Similar agreements like that, I think will actually really kind of be at the heart for some of this smaller, more independent financier to kind of get their foot in the door. For some, you know, maybe some somebody that wants to build their car might not have as stellar credit as you know, Ford credits risk appetite allows so you didn’t pass that on. So definitely something that we’re gonna have to keep track of, like you said. As a reminder to all of our readers, the auto finance summit is just around the corner. We are back in Las Vegas at the wind October 27 through the 29th. To learn more about the 2020 event, or if you would like to register if you haven’t visit auto finance summit calm, and I look forward to seeing everyone in Las Vegas. We want to hear from you, as always rate the roadmap on whichever platform you use to listen and follow us on Twitter and LinkedIn. Thanks so much for joining us. We’ll see you on auto finance news dotnet in here next time