4 EV trends to watch in 2023

The automotive industry will continue to focus on EV growth in 2023. Manufacturers are committing billions of dollars toward the development of electric vehicles in tandem with local and federal government incentive programs aimed at encouraging car buyers to purchase EVs and reduce their carbon footprint. New financing programs and compliance considerations will emerge as EVs gain market share and become more popular among consumers, leading lenders to bundle accessory products and roll tax credits into the contracts to assist consumers with affordability. 1. EVs gain market share Electric vehicle sales have gained momentum over the last two years and are steadily representing a larger portion of the industry. EVs accounted for 5.6% of new-vehicle registrations through the first three quarters of 2022 compared with 3.1% of new-car registrations during the corresponding period in 2021, according to Experian ’s Q3 2022 Auto Market Trends Report. EVs now make up 0.69% of all vehicles on the road. “This year, we've seen [EVs] cross that 5% mark of new retail registrations … so we would expect to see that growth continue for next year,” Kirsten Von Busch , director of product marketing at Experian, told Auto Finance News . California continues to lead the way in EV adoption, accounting for 35.5% of all light-duty EV registrations in the U.S. through the first three quarters of the year, with Florida and Texas coming in second and third with 7.4% and 6.4% respectively, according to Experian. Total U.S. EV sales are projected to finish around 700,000 vehicles, an increase of 40% year over year, according to Autonomy ’s Q3 2022 EV Market Report . U.S. EV sales in 2023 are projected to grow by 50% YoY, to 1.4 million units, which would be the first year that EV sales surpass 1 million units. Consumer adoption of EVs will continue to increase as new models come to the market, giving buyers more options and awareness around EVs, and tax credit savings opportunities grow, Brian Moody , executive editor at Kelley Blue Book , told AFN . Fleet buyers are likely to contribute to EV market share growth, Moody said. “Fleets are going to play a part in EV sales because they're the most likely candidates to want to capitalize on the available tax credits,” he said. Recent research from Cox Automotive indicates that 66% of fleet buyers are considering EVs, up from 43% in 2021. 2. Accessory product financing As EVs gain market share, one question for lenders is whether they will bundle EV accessory products like at-home charging stations, portable chargers and solar panels with the vehicle’s finance contract. Lenders that choose to bundle will have to consider compliance and risk implications of how the products fit within a car - focused financing agreement, Kelly Lipinski , member at McGlinchey , told AFN , adding that they will also have to think about how to sell the product. “How can finance companies advertise, and then include the cost of those items in an existing credit or lease agreement that has been historically regulated and drafted for a very singular focus, which is the car?” Lipinski said. California has already taken steps to address EV finance compliance by amending its motor vehicle retail installment sales law to explain that the cost of a charging station for an EV can be included in the amount financed on the vehicle, she noted. “[California] established a legal framework that provides us with certainty and confidence that if [lenders] are selling and financing a car, and a consumer also wants to include the cost of the charging station, they can do it under one singular financing agreement,” Lipinski said. Another question is how finance companies will approach the recovery of at-home chargers if a consumer becomes delinquent on payments. “Many finance companies are going to view [the charger] as an unrecoverable asset,” Lipinski said. “Some [lenders] have said we won't do it because they realize it's an unrecoverable asset because they can't go break into someone's home to get a charging station.” EV lender startup Tenet , for one, is working to bundle EV chargers with the vehicle loan, Chief Executive Alex Liegl told AFN . If a consumer defaults on the loan, the company can repossess the car and would treat the charger as a loss, he said. “Basically, you write off the charger, because the loan that is bundled is still ultimately secured by the car,” Liegl said. Bundling chargers with the vehicle makes the installation process easier on the consumer, he noted, and is a growing option for EV buyers. Lender EV Life will be looking to bundle charging stations into its EV Climate Loans in 2023, Peter Glenn , co-chief executive, told AFN , noting that the lender will offer bundled packages in states with the highest volume of EV sales. 3. EV tax credits rolled into financing EV tax credits aim to increase consumer adoption of EVs by lowering the total cost for consumers, but most lenders don’t apply tax credits at the point of origination, causing monthly payments to remain high. Rolling in tax credits at the point of origination is one thing for lenders to consider to increase adoption. Lenders EV Life and Tenet help consumers find and bundle rebates into vehicle loans at origination to reduce their monthly payments. EV Life allows consumers to use eligible local, state and national tax credits toward down payments. After the consumer purchases an EV, the lender assists the customer in filing for rebates to pay back the fronted down payment amount. “We facilitate the ability for middle - class buyers to be able to qualify for thousands [of dollars] in EV tax credits and rebates at the state and utility level,” EV Life’s Glenn said, noting consumers can see up to a $10,000 price difference on their EV purchase with the tax credits applied, making payments equivalent to a gas- or diesel-powered vehicle. Applying tax credits as a “pseudo down payment” enables customers to lower their monthly payment by about $200, he said. After the loan is originated, consumers have 18 months to repay the incentive portion of their loan, Glenn added. New York City-based Tenet also allows consumers to apply tax credits toward s their EV finance contract by allowing borrowers to defer 10% to 20% of the loan principal with the expectation consumers will apply for tax credits to pay the down payment in the future. 4. Lack of affordability One of the biggest deterrents to consumers adopting EVs is the high price of entry into the market, but cost relief does not appear to be on the horizon as the rate to produce EV batteries has increased. Many consumers are priced out of the EV market as payments align with those of luxury vehicles. In November, the average new EV cost was $65,041, compared with the average new luxury-vehicle price of $67,050, according to Kelley Blue Book. The average price for a new non-luxury vehicle was $44,584 in November. The rising cost of battery pack production will most likely cause EV prices to rise, EV Life’s Glenn said. The rate to produce an EV battery pack was $141 per kilowatt hour in 2021, but prices rose 7% in 2022, marking the first fee increase since 2010, according to BloombergNEF’s annual lithium-ion battery price survey. With the rising costs of battery materials, supply chain issues related to COVID-19 and the war in Ukraine, the price of EVs could go up in the short term, Glenn said. “Adjusting for inflation, I think we might see some slight increases in prices for existing models,” Glenn said, noting there are some lower cost models for middle class consumers to see have an EV “in financial reach.”

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