Startups draw on data-driven insights to slash the costs of EV ownership

Most U.S. car buyers aren’t getting a fair deal on the loans they take out to buy EVs, according to Alex Liegl, co-founder and CEO of electric-vehicle financing startup Tenet — and he’s got the data to back it up.

For example, why don’t loans take into account the federal tax credits and state and utility incentives you get when you buy an EV? That money might not reach the buyer until a year or more after the purchase, but it does make it more likely that they will keep up with their monthly payments.

EVs also cost less to fuel and maintain than gasoline-fueled vehicles, which lowers the financial burden on their owners. And if the owner defaults on the loan and the lender has to repossess the car, used EVs tend to be worth more than conventional cars with internal combustion engines — and the higher value of that collateral should be worth something as well.

Tenet’s unique take on EV loans bundles up all of these factors into a package that helps consumers by ​“acknowledging the unique attributes of EVs,” Liegl said. What’s been missing from the market so far is the in-depth data to back up his gut feeling that EV buyers are lower credit risks. ​“The more data we’re able to collect, the more efficiently we’re able to price our consumer loans, and the more savings we’re able to pass on.”

Since its 2021 founding, the Silicon Valley startup has raised an $18 million seed round of funding and signed up a number of automotive and financing partners with this premise. Last month it secured a $20 million debt facility from Silicon Valley Bank, which will allow it to ​“originate up to $20 million in EV loans per month,” he said.

Tenet doesn’t carry the loans on its own balance sheet, Liegl explained. Instead, it earns money from banks, credit unions, automakers, dealers and other financing partners that use its underlying data analysis to ​“connect the dots and align those incentives.”

The company has enabled several thousand loans so far, is active across 33 states, and is aiming to get at least 10,000 EVs financed by the end of 2023, he said. On average, these loans offer monthly payments that are about $150 less than payments on loans for EVs that are made in more conventional ways, Tenet said.

The availability of more attractive loans could play a big role in speeding EV adoption among U.S. consumers, said Nick Christian, head of specialty financing for Silicon Valley Bank. About 85 percent of U.S. car buyers finance their vehicle purchases.

Lower borrowing costs will also become increasingly important in making EVs more affordable as states like California require increasing percentages of new cars sold to be EVs and move toward bans on the sale of new gasoline-fueled vehicles starting in 2035. And as interest rates rise across the board, getting monthly loan payments down as low as possible is especially important.

Automakers’ financing units have been offering special deals for EV loans for years now, as have certain banks and credit unions, Christian said. But ​“they don’t underwrite any differently for EVs than they do for an internal-combustion-engine vehicle.”

In other words, these offers aren’t necessarily backed by underlying analysis of the data that might justify them, he said. Tenet, in contrast, has pulled together the relevant data on EV buyers’ ability to repay their loans and the long-term value of the asset they’re borrowing against, in a way that Christian hasn’t seen other auto lenders do yet.

“I suspect that if someone is successful, there will be copycats,” he said. ​“But they’re first.” 

Simplifying the EV ownership experience 

Tenet is working to reduce EV buyers’ costs in another way too: streamlining the process of installing EV chargers at customers’ homes. To that end, the company has teamed up with Treehouse, another Silicon Valley startup that’s built a similar data-driven approach to bundling the cost of buying and installing EV chargers at home.

Lots of automakers and dealers offer EV buyers discounts on home chargers from a variety of technology vendors. But few offer help in assessing how much it will cost to install those chargers, Treehouse CEO Eric Owski said — and none that he knows of are bundling the cost of charger installation into the loan for buying an EV, as Treehouse and Tenet plan to start doing in the first quarter of 2023.

“Most EV owners are receiving fairly poor guidance at the point of sale” about how to ready their homes for charging their new EV, Owski said. That can be a problem for homes with inadequate electrical service to support heavier charging loads or wiring that doesn’t extend to where they park their cars.

“Anecdotally, probably 10 to 20 percent of EV buyers have run into a problem they wish they’d known about beforehand” related to charging at home, he said. ​“For a small percentage of those, it becomes a real deal-breaker.”

Treehouse collects data from prospective customers via an online form that asks a relatively simple set of questions — home address, what type of building it is, preferred charger location, and the location and amperage of the electrical panel — and combines that information with a growing store of its own data to provide a cost estimate for the installation.

The company has hired its own electricians to do installations and also contracts to third parties, Owski said. Today it does installations in California, and it plans to expand to several other states next year. Treehouse also partners with companies like NeoCharge, which makes a device that prevents EV-charging loads from overwhelming household circuits, and Optiwatt, which provides an app that schedules EV charging to happen when electricity rates are cheaper. These interventions can save ​“hundreds if not thousands of dollars” on both upfront and ongoing charging costs, Owski said.

Cutting the costs and complexities of owning an EV will be important to help EV adoption move beyond ​“a lot of early adopters who were willing to break through barriers on their own,” he said. ​“I think we’re seeing that consumer perspective shifting as EVs hit that tipping point. Everything has to work smoothly.”

A recent survey by EV-charging company Volta found that nearly 60 percent of people who plan to buy an EV in the next 12 months have household incomes below $75,000 a year, while less than a third of current EV owners have incomes below that threshold. That means this new class of buyers will be particularly cost-conscious.

The experience that these customers have with financing an EV and installing charging equipment could play an important role in whether they take further steps to switch from fossil fuels to electricity in other parts of their lives, Owski said. Both Treehouse and Tenet see ​“EVs as a beachhead into home energy,” he said. ​“Consumers are much more open to broader electrification options once they have an EV in their home.”

Liegl agreed that EVs are a ​“natural entry point” for broader electrification of home heating and cooking and other home decarbonization and efficiency measures. ​“We want to be that financial network for the climate economy.”

Building the data sets to lower financial barriers to EV adoption 

Upfront costs remain the chief barrier for would-be EV buyers, as most EVs are currently more expensive than comparable gas-powered cars. But if financing models can bring those upfront costs down, EV owners could benefit over the long term, as EVs can be cheaper to own over their lifetime — a factor that’s informing other novel approaches to bringing down the cost for would-be EV owners, such as startup Zevvy’s EV leasing model aimed at high-mileage drivers.

Accounting for the Inflation Reduction Act’s $7,500 tax credit for new EVs is one way to bring down upfront costs, Liegl said. The tax credit could take 12 to 18 months to reach buyers’ bank accounts. ​“Our job is to pull that forward to the point of purchase or shortly after,” he said. ​“When they’re buying their vehicle, they can apply that as a deferred down payment” through a structure that Tenet has crafted with its lending partners.

That isn’t the only part of the Inflation Reduction Act with implications for automakers and lenders, said Ellen Hughes-Cromwick, a former chief economist for Ford Motor Co. who’s now a senior resident fellow at think tank Third Way’s climate and energy program. There’s also the $4,000 tax credit for used EVs, which is valuable not just for those buying used cars but also for the automakers, dealers, rental-car companies and other fleet owners that have a vested interest in the value of those vehicles over time.

EVs are also in high demand in a tight car market, which makes them more valuable as collateral, she explained. ​“If that household is unable to meet the loan or lease payment, the company has to take that vehicle back, and they’re going to be doing the modeling to understand what that vehicle is worth,” she said.

All of these considerations play a role in auto-loan securitization markets, in which lots of auto loans are put together into asset-backed securities, much like bonds or mortgage-backed securities, she pointed out. ​“I’d be shocked if Ford Credit wasn’t doing this kind of modeling,” along with the financing arms of other automakers and fleet owners, she said.

Bundles of EV loans could be more valuable than bundles of loans for gas-powered cars. Corporations and financial institutions are increasingly seeking out investments that meet environmental, social and governance (ESG) standards, Hughes-Cromwick said.

While the ESG value of EV-loan-backed securities has yet to be established, the fact that EV purchases displace purchases of polluting fossil-fueled vehicles is likely to have value in the market, Liegl said. In fact, data about how EVs are driven could make these loans even more valuable as ESG investments, he noted, since that can provide a record of just how much pollution and carbon emissions they’re preventing compared to gasoline-fueled vehicles.

That gives investors ​“insights into how much CO₂ they’re helping to avoid,” he said. ​“They can start tracking their climate impact…and begin to think about how that slots into their overall ESG goals.”

Silicon Valley Bank has its eye on those values as well, Christian said. Like many banks, it has experience bundling individual loans into asset-backed securities, including loans for installing residential solar systems. Securitization has helped drive down the cost of capital for rooftop solar systems and could play a similar role for EVs and broader home-efficiency investments as well, he noted.

“If we can help [Tenet] like we would a normal consumer lender, but also do something that’s good for the broader environment, that’s a plus for us,” Christian said.