What to Know About EV Lending

 By Ray Birch

WEST WINDSOR TOWNSHIP, N.J.—There are a couple of important facts credit unions must keep in mind as they increasingly make loans for electric vehicles (EVs).

The first is that while EVs are perceived to be more economical than internal combustion engine (ICE)-powered vehicles, one new report suggests that while electric vehicles are cheaper to operate, the overall savings may not be as significant as many people think.

Moreover, as EVs become the dominant form of transportation, prices for charging—even at home—will begin to rise just like gas prices, one automotive industry expert is predicting.

Sumit Chauhan, co- founder and COO at Cerebrum X, which provides AI-driven automotive data services and a management platform, said that kind of conventional wisdom-challenging pieces of information must be considered by auto lenders both for the sake of their own portfolios as well as the sake of members’ household budgets.

“It's not yet cheaper to charge many electric cars than it would be to fuel their gas-powered counterparts,” said Chauhan, citing a study from Anderson Economic Group. “The cost of filling up at a gas station versus plugging in—and whether those two match up—largely depends on the vehicle segment and price.”

What Report Found

The report calculated driving costs for vehicles driving 12,000 “purposeful” miles per year in the Midwest and Michigan. The study took into consideration residential electricity prices, commercial charging prices, tax rates levied on fuel and EVs, fuel economy for popular models in each vehicle segment, and the allowance for travel to commercial charging stations.

“The analysis considered four categories of real-world costs for both ICE and EVs, including energy, taxes, pump or charger, and deadhead miles,” the study states.

The study found trucks cost about the same to fuel and charge, while entry and midlevel cars and SUVs cost more to charge at home and in public than they do to fuel at a gas station.

“Luxury cars and SUVs fall somewhere in the middle,” he said. “Of course, gas prices can fluctuate and electricity costs vary widely by region depending on how it is produced.”

Chauhan, citing Kelley Blue Book data, said cost parity between electric vehicles and internal-combustion engine cars is largely lacking—EVs are generally more expensive—with an average transaction price of $53,438 in June versus $48,808 for ICE vehicles.

Additional Findings

The Anderson Economic Group further found the following:

• Entry-priced cars and crossovers. “In the entry-priced segment, gas-powered cars were the most economical to fuel at around $9.78 per 100 purposeful miles. That’s significantly more affordable than an entry-priced EV charged mostly at home ($12.55), and it’s a dramatic savings over an EV charged mostly at commercial charging stations ($15.97),” the report states.
• Mid-priced cars and crossovers. “ICE vehicles were also more affordable to fuel in this segment, at approximately $11.08 per 100 miles. This cost is lower than that for primarily home EV charging ($12.62) and for mostly commercial EV charging ($16.10),” according to the report.
• Luxury-priced cars and crossovers. “In the luxury segment, electric vehicles charged mostly at home were the most economical. High-end EV drivers paid around $13.50 per 100 miles, as opposed to the $17.56 it would have cost to fuel a comparable ICE car. Luxury EV drivers charging mostly commercially, however, paid slightly more than they would have in an ICE vehicle ($17.81),” the report states.
• Pickup trucks. “At around $17.10 per 100 miles, diesel-powered trucks were less expensive to fuel than their gas or electric counterparts. Gasoline-powered pickups cost about $17.58 to fuel, while EV trucks charged mostly at home cost $17.72. Drivers of electric pickups who needed to charge commercially most of the time found themselves paying about $26.38—exceeding their diesel counterparts by about $9,” according to the report.

Sumit Chauhan

‘Not As Much as People Think’

“So, the savings are not as massively different as people think,” Chauhan said.

When it comes to the two forms of EV charging—the public chargers and the at-home chargers, Chauhan told CUToday.info, “The issues are slightly different between each of them. The issue with public charging is how do I know which is the one that is closest to me while I'm driving and I'm running out of charge, and how much would it cost me to go and charge there,” he said.

And, of course, different types of chargers re-charge vehicles faster than others.

Charge-Buddy?

Chauhan said he expects that in the near future there will be apps, like Gas Buddy, that will be available for EV charging stations.

“You will see which are the lowest cost and help you optimize the number of hours that you spend charging at a public charging station,” he said, with the objective being to save people money.

Meanwhile, when it comes to home chargers, where most of the charging takes place, Chauhan said some challenges exist.

“Let's say you work nine to six. You come back at six, plug in your car in your garage. What is happening today is the car starts charging immediately after you plug it in,” he explained. “But your car is plugged in the whole night. Why do you need to charge it at 6 p.m. when probably the electric rates are at their highest. The ideal thing to do is, if you know that you're not going to drive till 6 a.m., charge between 3 a.m. and 6 a.m. when rates are the lowest.”

‘Jacking Up Rates’

Such tools are already available, noted Chauhan, who suggested that’s important as the price for electricity is only going to increase.

“Right now, the government is giving a lot of thought towards electrification of cars. But, as the number of electric vehicles increases and the amount of electricity being consumed markedly increases, they will start jacking up the rates.”

Then there is another factor Chauhan believes will help drive up electricity costs, and that is that EVs do not generate the kinds of fuel taxes used to pay for road maintenance.  

“Each time you fill your tank there is a small percentage of that price that goes towards the road tax. Right now, because the government is focusing a lot on electrification, people who are charging their electric cars are not paying for the road tax,” Chauhan said.

At some point that tax will also be passed along at charging stations and at homes, Chauhan noted.

“The whole intention is to move people to electrification, because it's cleaner and supposedly better than what we have today. But the cost side of this will catch up with consumers,” Chauhan said.

‘Even Worse’

Another concern for EV owners today is the possibility of non-standard charging stations not working the same for all of EV batteries. Chauhan said that may lead to a public charger damaging EV batteries.

“Even worse, it could possibly impact the car’s electrical system,” he said.

Chauhan anticipates standards will eventually be developed for charging stations, but for now, it’s a issue that goes beyond just a concern for EV owners—it’s also potentially problematic dor lenders for which the vehicles are collateral.

“Lenders would be wise to give their new EV borrowers a booklet on how to best use public charging stations and how to take advantage of the lowest electric rates when they are at home,” Chauhan advised. “That will not only help to protect the borrower, but the lender, as well.”

Chauhan further advised lenders to really understand the warranty contracts on battery cells for each EV they finance.

“The major repair concern with an EV is the battery cells,” reminded Chauhan. “Whoever the maker of the cell is, the lender needs to review those warranties carefully. As I said before, what happens if an EV charging station, or even owner error, damages the battery.”

Varied Costs

Just as the Anderson Economic Group study pointed out, operating costs to run an ICE vehicle 100 miles depend a great deal on the make and model of the car, which also holds true with an EV.

Data show that across the entire Tesla range, for example, it could cost between $2.90 and $4.50 to drive 100 miles. Entry-priced EVs charged at stations cost $15.97 per 100 miles, reports have stated. Also, a June 2021, the Department of Energy conducted a study to compare the maintenance costs of EVs and ICE vehicles. Overall, the DOE found that an EV costs 6.1 cents per mile driven, whereas an ICE vehicle costs 10.1 cents per mile driven.