For the most part, the funding options available in the consumer-facing market are no different to those traditionally used for ICE vehicles - although a number of EV-specific salary sacrifice schemes are available, hire purchase, PCP and other types of personal finance remain the most common source of finance. Whilst traditional models of financing assets remain relevant for commercial funding of EV, the growth of ESG lending (or sustainable finance) has paved the way for less vanilla funding models. In the last 12 months we have seen increasing numbers of non-traditional funding structures. Many companies will be familiar with leasing, where the funder owns the vehicle and leases it to the operator. However, we are seeing traditional loans increasingly used to fund fleet acquisitions, where a funder will make a loan available to the company to purchase the relevant vehicles outright. In return, the funder will typically require security in its favour, often in the form of a debenture comprising a floating charge over the relevant vehicles. Since the first sustainable loan was introduced in 2014, the use of green and sustainable financing has grown exponentially. These loans provide borrowers with incentives for using the funds for green initiatives or achieving specific ESG targets. Historically, however, such loans have rarely been used to finance vehicles, particularly within leasing structures. In Q1 2024, FirstGroup plc secured a £150 million green asset finance facility to fund up to 1,000 electric buses. This innovative transaction, one of the first of its kind, incorporated green loan principles into a syndicated hire purchase facility with Lloyds, NatWest, and Bank of America to finance the bus husks. Uniquely, FirstGroup funded the batteries and bus husks separately. In November 2023, FirstGroup partnered with Hitachi in a 50-50 joint venture to acquire, deploy, and manage the batteries with separate funding from MUFG, SMBC, and NatWest, with Hitachi providing battery management and zero-carbon power generation. While the structure adopted by FirstGroup is somewhat unique, we anticipate that similarly innovative approaches will become more common as businesses seek the most balance sheet-efficient ways to refresh their vehicle fleets. As funders and companies increasingly embrace ESG funding, and as the market continues to evolve, we expect alternative funding options to gain prominence.
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