Cheaper loans on EVs are possible, startup Tenet says

The marketplace is overpricing electric vehicle loans, according to a startup that says its EV depreciation projections support more affordable financing terms for consumers.

Tenet co-founder and CEO Alex Liegl told Automotive News that his company's EV borrowers save more than $200 a month. Savings tend to stem from lenders pricing the reduced depreciation Tenet calculates into their loan terms, but the company also matches customers with investors and lenders willing to offer better EV financing deals because of a "climate-friendly" mindset.

He said Tenet built its EV depreciation model using EV data that predates the pandemic and today's outlier of an automotive market. If its customers consent, Tenet also draws live data from their vehicles to both refine its models and offer motorists emissions and value insights.

According to Liegl, an EV has far fewer moving points, can be upgraded over time with software updates and requires less maintenance than an internal combustion engine vehicle. The battery also has a salvage value, he said.

"At the end of the day, you can take a differentiated view on the collateral when it comes to how residual value is [preserved]," Liegl said.

EV adoption is at an inflection point and EV technology innovation is under way, Liegl said. But he said Tenet realized no one is "really thinking about the financing aspect."

Liegl said "a lot of inertia" and the small EV population keep large banks from developing EV-specific lending models, and they're unable to capture vehicle data beyond the point of purchase.

Automaker captive finance companies are constrained by their need to support both electric and gasoline vehicles, Liegl said.

Tenet also allows customers financing an EV to defer the amount of the tax credit available with that vehicle.

"Tenet is able to 'pull forward' the cash benefit of tax credits to make the EV more affordable at purchase in combination with our deferred option," Liegl said in a statement.

Alex Yurchenko, senior vice president and chief data science officer for valuation provider Black Book, said he felt electric and ICE vehicles weren't so different as to merit different interest rates.

"We are viewing EVs as a vehicle so, in our opinion, there is no need to separate risk by powertrain," he wrote in an email this month.

But Yurchenko said Black Book did take factors such as the battery, software and parts into account when projecting a vehicle's depreciation.

"Pricing models are vehicle-specific and reflect technology, demand and other factors," he wrote.

Asked if he felt the market as a whole mispriced EV loans, Yurchenko replied: "Current values are driven by the market condition so they are reflecting the current market."

Yurchenko said the average EV had a lower residual value than a comparable ICE vehicle, "mainly due to higher MSRP and high incentives." But this spread was narrowing, he said.

He also noted that automakers that retain EVs instead of permitting buyouts by lessees have "more levers to pull to improve [residual values]."

According to Yurchenko, plug-in hybrid residual values could be more problematic for consumers and lenders. While many hybrid residual values exceed those of comparable ICE models, plug-in hybrid residuals don't reach ICE levels, he said.

"It seems that demand for plug-in hybrids is weak," Yurchenko said. "We do not see RVs for plug-in hybrids catching up with ICE or BEV" models.

Investors appear to agree with Tenet's hypothesis and what the company described as a plan to "expand into zero-emission home upgrades." Tenet announced June 28 that it had raised seed funding of $18 million, led by Human Capital and Giant Ventures.

"Tenet is reimagining the financial system to accelerate the adoption of climate-positive products," Cameron McLain, Giant Ventures managing partner, said in a statement. "We are excited to work with Tenet as they unlock scalable access to high-quality [environmental, social and governance] assets for their institutional investor partners."

Tenet said its technology permits immediate loan decisions. It finds lenders willing to provide financing to the customer, cuts a loan to the consumer, then flips the deal to the lender and takes an origination fee. Tenet still services the loan, which allows it to maintain a relationship with the customer, Liegl said.

Liegl said Tenet hasn't integrated yet with systems such as RouteOne or Dealertrack, but it does work with used-EV dealerships. He said the company doesn't pay incentives to dealerships, but retailers benefit by closing more deals and from Tenet's ability to quickly move money to the dealership once the auto loan is approved.

"With inflation hitting its highest levels in two generations and people paying record prices at the pump, the demand for EVs will continue to grow exponentially," Liegl said in a statement. "We've created a new model for EV financing that incentivizes consumers to adopt new zero-emission technology and will continue expanding our offerings to support sustainable improvements for the entire home."