TransUnion examines EV's market growth & consumer credit profiles

TransUnion examines EV’s market growth & consumer credit profiles

Source: Auto Remarketing – A new TransUnion study conducted in collaboration with S&P Global Mobility determined the registered electric vehicle market share is expected to grow from 5% at the end of 2021 to approximately 40% by 2031.

Analysts also 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, TransUnion and S&P Global Mobility pointed out in a news release distributed on Wednesday that only fully battery-powered electric vehicles (EVs) are included, and not plug-in hybrids. The firms pointed out that traditional internal combustion engine vehicles (ICE) include gasoline, diesel and ethanol vehicles.

They said 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,” Merchant continued in the news release.

Credit profile of EV buyers

TransUnion’s study examined the credit risk of both EV and ICE buyers.

Analysts indicated the average credit scores for EV buyers — both those purchasing mainstream or luxury vehicles — was greater than all ICE buyers.

Furthermore, TransUnion noticed EV buyers secured lower interest rates for their vehicle 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.

Analysts explained 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.

Controlling for credit quality, TransUnion noted 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 contracts 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,” Kohn continued.

EV Buyers Generally Have a Stronger Credit Profile and Make Larger Down Payments

Car BuyerAverage Credit ScoreAverage APRAverage LTV
ICE Mainstream7354.3%102.2%
EV Mainstream7752.8%91.6%
ICE Luxury7693.1%95.3%
EV Luxury7752.8%88.8%

Source: TransUnion

EV 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.

TransUnion reported 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, survey orchestrators found there was an even more dramatic shift in online use for those owning or considering EVs versus all other vehicle owners.

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