When it Comes to Electric Trucks, We Need to Spread the Risk
Originally appeared in Monitor Daily
Patrick Gaskins, senior vice president of fleet solutions at Corcentric, expands on the need for financing of capital equipment for electric commercial vehicles, chargers and charging stations while stressing a commitment to ESG goals. A big change is just over the horizon for BEVs, will your company be ready?
Developments in battery electric commercial vehicles are coming fast and furiously. I attended the recent Technology & Maintenance Council spring meeting and many of the presentations focused on BEVs, chargers, charging infrastructure and the maintenance and repair needs of BEVs.
One topic that did not come up was the financing of these vehicles. As things stand today, most BEVs in commercial applications have been demo units that fleets are piloting so they can learn how the new technology fits into their operations. However, we are getting to a point where some fleets are beginning to take delivery of production BEVs and the issue of financing those assets needs to be addressed.
Financing of capital equipment is a process that takes into consideration a variety of factors – from the initial cost of the equipment to the number of miles the vehicle will be driven over the term of the finance agreement to what that asset will be worth on the secondary market to interest rates and more. With diesel-powered vehicles, finance companies – and more importantly banks – have years of performance data regarding reliability, durability, and value at the end of the finance terms.
None of this is available for BEVs. The technology is so new that we have no historical data on which to base financing decisions. In a sense, we are flying blind. To date, banks have not been willing to bet on the residual value of these trucks; it is not even clear if these early model BEVs will have a second owner.
At the same time, many companies — some of the biggest names — are making sustainability part of their core values and are expecting their trucking company partners or their own private fleet vehicles to be part of reducing their overall carbon footprint.
That means we are likely to see more private and for-hire fleets start to purchase BEVs, but I suspect they will have to take on much of the residual risk themselves. That has the potential of slowing down the purchase of these trucks because fleets will be bearing a bigger share of the financial burden.
One of the other big unknowns with BEVs is the battery packs themselves, and that, of course, plays into the residual value part of the financial equation. One solution for this is for BEV manufacturers to warrant the batteries for long periods. The longer the warranty on the battery, the longer the asset will retain its value as it moves through its life cycle.
I believe if truck or battery manufacturers had longer warranties on their batteries that the banks would have more confidence in financing those assets because one of the big unknowns would be eliminated.
Trucking is moving into a new era and is expected to do its part to contribute to a cleaner environment. Finance companies and banks are going to have to look at new options for helping fleets afford these lower emissions trucks.
We’ve always relied on historical knowledge to make financing decisions and that has determined our risk appetite. With these new assets, we may need to spread the risk around differently to help ensure that more of these trucks find their way into fleet operations.
And we need to figure this out soon because BEVs are not the only alternative powered trucks that will be available. Companies are doing work on hydrogen fuel cells, renewable natural gas, hybrids, hydrogen in internal combustion engines and more.
Perhaps the BEV financing model that we and our banking partners come up with could also be applied to those other powertrains, even if it means changing who takes on the risk. I suspect risk sharing between the truck manufacturers, the fleet and the banks is the model that will work best until we amass some real-world data.
At Corcentric, we stand ready to help any fleet bridge that gap. To learn how we can help, contact Corcentric today.
Patrick Gaskins, Senior Vice President Fleet Solutions, Corcentric
Patrick Gaskins is a financial services professional serving the transportation industry for over 30 years. He began his career with Corcentric in 2010 as VP of Financial Services, was promoted to SVP of Sales and Operations, and is now taking on this new role, where he leads Corcentric’s Captial Equipment Solutions, Fleet Procurement, Supply Management, and Remarketing teams. Patrick brings to the Fleet practice his expertise in developing data-driven solutions to complex transportation transactions, driving efficiencies, and reducing expenses for Corcentric’s clients.