CHICAGO – Newly registered electric vehicle market share is expected to grow from 5% at the end of 2021 to approximately 40% by 2031. A new TransUnion (NYSE: TRU) study, conducted in collaboration with S&P Global Mobility, found that the increasing popularity of such vehicles will have a marked impact on the auto finance industry as the credit risk profile of consumers purchasing them differs dramatically from those buying traditional gasoline-powered vehicles.
For the purposes of this research, only fully battery-powered electric vehicles (EV) are included, and not plug-in hybrids. Traditional internal combustion engine vehicles (ICE) include gasoline, diesel and ethanol vehicles. The study also accounted for luxury and mainstream vehicle types. Approximately 76% of EVs are classified as luxury compared to 16% of ICE.
“Consumer interest in electric vehicles from Tesla, Ford, Nissan and others is only going to grow in the next decade and meeting the unique demands of these buyers will become a business imperative for auto dealers and lenders,” said Satyan Merchant, senior vice president and automotive business leader at TransUnion. “Our research clearly shows that electric vehicle buyers have excellent credit risk profiles, but this group also has varying preferences, including a larger appetite in shopping around for vehicle financing by digital means.”
Credit Profile of Electric Vehicle Buyers
TransUnion’s study observed the credit risk of both EV and ICE buyers. The average credit scores for EV buyers – both those purchasing mainstream or luxury vehicles – was greater than all ICE buyers. As well, EV buyers secured lower interest rates for their car purchases. This was partly due to having better credit risk profiles and because they have lower loan to value (LTV) rates than typical ICE buyers. Loan-to-value is a ratio that is determined by dividing the amount borrowed (including sales tax, title and licensing fees) by the total cost of the vehicle.
EV Buyers Generally Have a Stronger Credit Profile and Make Larger Down Payments
Car Buyer | Average Credit Score | Average APR | Average LTV |
ICE Mainstream | 735 | 4.3% | 102.2% |
EV Mainstream | 775 | 2.8% | 91.6% |
ICE Luxury | 769 | 3.1% | 95.3% |
EV Luxury | 775 | 2.8% | 88.8% |
Controlling for credit quality, both mainstream and luxury EV buyers have lower serious delinquency rates versus mainstream and luxury ICE buyers. For instance, the 60+ days past due rate after 12 months for mainstream loans originated in 2020 was 0.72% for EV and 0.92% for ICE. For luxury vehicles in the same timeframe, EV had a 0.27% delinquency rate compared to 0.67% for ICE.
“It’s clear that electric vehicle buyers have a stronger credit risk profile than consumers who purchase traditional autos,” said Eric Kohn, co-author of the study and vice president in TransUnion’s automotive business. “In fact, credit performance as measured by serious delinquency rates for mainstream electric vehicle buyers more closely resembles traditional luxury buyers. This points to the overall electric vehicle market being both less risky for lenders as well as a more competitive marketplace in securing consumers’ business.”
Electric Vehicle Buyers Conduct More Online Shopping
TransUnion’s study also included a survey of 1,480 U.S. vehicle owners for their thoughts on electric vehicles and financing. The survey found that consumers who own or are considering purchasing an EV are more interested in online car shopping and financing experiences.
More than one-third of EV owners (35%) and those considering buying an EV (36%) conduct research on vehicle makes/models online while this percentage declined to 28% for all other vehicle buyers.
As for understanding financing and monthly payments and completing financing, there was an even more dramatic shift in online use for those owning or considering EVs versus all other auto owners. Approximately 36% of EV owners said they go online to understand financing/monthly payments with 32% completing financing online. For all other vehicle owners, the percentage going online to understand financing/monthly payments dropped to 24% with only 16% completing financing online.
“Electric vehicle owners and considerers are far more likely to want to understand what they can afford online and they are more likely want to complete financing online. Online prequalification at the start of the shopping process will help lenders capture more EV buyers. As a result, end-to-end digital retailing in partnership with dealers will be critical for lenders,” concluded Merchant.
A Quick Guide about the study and information on what auto lenders can do to identify, target and capture EV consumers can be found here.
