In the future, you can bet transportation will be electric. And the future is coming fast. By 2030, electric vehicles are expected to make up about half of new car sales.
With transportation holding its position as the largest source of pollution in the U.S. economy, the transition away from gas and diesel vehicles couldn’t come at a more crucial time.
However, the shift to EVs is not just about reducing pollution. It is a seismic economic opportunity — not just for auto and truck manufacturers and other industry players, but also for banks. Investment in electric vehicles boomed during the past two years — $42 billion in 2023, up from $18 billion the previous year.
But spurring on this growing market — especially at the rate we need to slash emissions and avoid the worst impacts of the overheating planet — will require even more capital. Capital to not only fund the upfront costs of growing the United States’ EV manufacturing capacity even more but also support EV infrastructure build-out and vehicle and battery technology advancement. Major corporate fleet operators will also need significant capital to transition their fleets to clean cars and trucks and build the infrastructure to support them.
The auto industry and other key EV stakeholders are stepping up to meet this shift — but a key piece of the puzzle is even more innovative financing — and banks have both a critical role to play and an opportunity to profit.
Here are six ways banks can support financing and expand their market share in a key industry while supporting the growing EV revolution:
1. Educate companies looking to cut their carbon pollution on the long-term financial advantages of EV adoption
The Inflation Reduction Act makes commercial EVs eligible for significant federal tax credits. The credits can be applied one of two ways. The first is based on the cost difference between an EV and a comparable internal combustion engine vehicle. The other is up to 30 percent of the vehicle’s sale price — with the maximum credit determined by vehicle weight. Additionally, the act extends tax credits of up to $100,000 per unit for new EV charging infrastructure.
Other provisions under the IRA will spur new interest in new clean energy development, such as tax credits for renewable energy production or investment. Banks should promote and support these policies in their discussions with corporate clients and companies in their portfolios, especially small- and medium-size enterprises that might lack internal capacity. Many financial institutions, including Bank of America, are already doing so. This advisory work can ultimately increase demand for financing, making it a win-win for banks and their clients.
2. Engage with auto and truck manufacturers to encourage transition planning in their portfolios
To secure their place in the global auto industry as the race to become an EV frontrunner tightens, automakers need to be actively planning the phaseout of gas vehicles. This includes ramping up EV production, supporting the expansion of EV infrastructure, improving equitable access to EVs, and advancing the ethical management of the EV supply chain. Bank of America, Citi, Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo have set financed emissions-reduction targets in the auto sector and are working with clients on transition plans to lower emissions. Over time, banks should begin to reallocate capital toward clients with stronger transition plans.
However, the shift to EVs is not just about reducing pollution. It is a seismic economic opportunity — not just for auto and truck manufacturers and other industry players, but also for banks.
3. Leverage financial tools to ensure funding moves from gas-burning vehicles to EVs
Banks should focus on promoting products and services, such as green bonds, that must be used for activities that will support the transition to a low-carbon economy or that otherwise incentivize decarbonization. Bonds and loans that lower the cost of capital for green projects (or reward companies for achieving goals) can more accurately reflect the true risks and opportunities associated with the EV transition. For example, a sustainability-linked loan could link an automaker’s financing costs to its EV deployment rate. BNP Paribas is one of many global banks that have issued these kinds of products.
4. Support the scaling up of charging infrastructure and new vehicle technologies
Banks can be instrumental to financing the build-out of small-, medium- and large-scale EV charging sites, which have the opportunity to be lucrative if sited along major freight and travel corridors and at high-traffic locations. Opportunities also exist to support research and development, such as new EV battery technologies and battery and component recycling, through venture financing, project financing or underwriting. Banks such as Wells Fargo, through its Innovation Incubator, have invested in multiple ventures to support EV innovation and scalability.
5. Help drive the power sector’s shift to clean energy
Supporting the EV revolution is going to take power — electric power. Utilities will be pivotal in supporting and growing the EV market, and banks should focus on funding efforts that reduce emissions from power production, transmission and distribution. This could include green bonds that support renewable energy development or financial mechanisms that support the managed phaseout of fossil fuel assets. Global banks, including Citi and Bank of America, are increasingly working with governments and utilities to phase out coal power and scale up renewables.
6. Work with the auto industry to lower the cost of buying and leasing EVs
Banks have the opportunity to create programs and identify opportunities that accelerate EV adoption plans for companies and individuals, increasing EV demand and enabling auto and truck manufacturers to take advantage of economies of scale. This could also include partnering with a specific automotive company to focus on delivering vehicles to the market at affordable prices, or providing consumers with EV loans that consider lower EV fuel and maintenance costs in the loan pricing, as Canadian bank CIBC, among others, has done.
By harnessing their financial expertise and strategic influence, banks can not only drive their own market share growth in a key sector but also spark a sustainable future powered by EVs.
Blair Bateson is director of financial services at Ceres, and Sara Forni is the director of electric vehicles and the Corporate Electric Vehicle Alliance at Ceres.
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- Source: https://www.greenbiz.com/article/6-ways-banks-can-drive-ev-adoption-and-grab-big-slice-growing-industry-pie