Since the earliest days of the COVID-19 pandemic, economists have been speculating about the ways in which the post-pandemic economy might be permanently altered. Some of those predictions look shaky at best today. The persistence of high inflation has cast doubt on the belief that a strong fiscal response to economic downturns will be the norm going forward. But in other ways, society has made significant changes that look like they’ll stick. The shift to remote work is one example, and one which will have cascading effects throughout the economy. Similarly, the auto industry’s slow migration to electric vehicles (EVs) is accelerating, thanks to recent legislation and a sharp rise in oil prices. The vehicle loan market is a critical one for credit unions, and early returns suggest that more work is needed if they are to maintain market share during the EV transition.
Limited charging networks have long been a key factor cited by car buyers who are reluctant to make the jump to EVs. But 2021 saw a clear surge in new charging stations, which now number over 50,000 according to the Alternative Fuels Data Center (see chart 1). The effort to expand charging networks received a boost with the passage of the Bipartisan Infrastructure Law in late 2021. The legislation includes $5 billion in state funding and $2.5 billion for local communities to build out charging networks. The Biden Administration’s stated goal is to quadruple the number of ports to 500,000 by 2030, with a goal for EVs to make up 50% of total new vehicle sales by that time.
A second factor which changed the trajectory of EV adoption was rising oil prices. Studies find conflicting evidence on the degree to which consumers factor into their purchase decision a vehicle’s expected fuel costs. But the rise in gas prices in 2021 followed by the spike in 2022 precipitated by the Russian Federation’s invasion of Ukraine closely tracked Google search activity for electric vehicles (see chart 2). The U.S. Energy Information Administration’s Short-Term Energy Outlook forecasts gas prices to remain elevated through at least the rest of 2022.
A rapid transition to EVs poses a threat to a key source of lending for credit unions. According to Experian, credit unions financed 14% of total new auto loans made in the fourth quarter of 2021, but just 12% of loans for EVs. While it remains to be seen how EV financing will evolve, it is a critical issue given the importance of vehicle loans to the industry. As of December 31, 2021, new and used car loans made up one-third of the total credit union loans outstanding, and that figure rises to 46% for credit unions with under $100 million in assets. Larger credit unions are more diversified due to greater mortgage and commercial loans, but they tend to be more reliant on indirect lending to generate auto loan volume. Here, too, there may be some vulnerabilities as traditional dealers will need to determine how heavily to invest in EV showrooms and servicing. Tesla famously eschews the traditional dealership franchise network. EV startup Rivian is expected to follow suit and has already partnered with JPMorgan Chase to fund loans to new customers. Credit unions that want to maintain their share of the local auto loan market will need to grapple with not only the transition to electric vehicles, but also new financing channels and an increasingly online sales experience.
- The White House. “FACT SHEET: The Biden-Harris Electric Vehicle Charging Action Plan.” December 13, 2021.
- U.S. Energy Information Administration. “Short-Term Energy Outlook.” March 8, 2022.
- Experian. “State of the Automotive Finance Market Q4 2021.” Chase Media Center. “Rivian, Chase partner to create an all-digital customer financing experience.” January 14, 2021.