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Financing Fleet Electrification: Battery-Electric Truck Component Resale Highlights Residual Value Upside By Kabir Nadkarni September 2024
Executive Summary Battery-electric trucks (BETs) remain a relatively new asset class in the eyes of vehicle loan providers and financing companies. In the absence of truck-resale pricing data, vehicle financing companies often make the conservative assumption that a BET’s residual value (RV) will fall to nearly zero early in its financing term. Assuming a low RV for BETs makes their financing unaffordable, since borrowing fleets must finance most or all of the delivery price of a BET by making high periodic payments. While the secondary market for BETs matures and more resale transactions occur, a stopgap method is needed to benchmark the minimum RV of BETs and improve their financing outlook. RV can be better estimated by valuating BETs’ used components, including the battery pack, structural chassis, and various power electronics and devices that constitute the electric axle. By benchmarking a BET’s RV to the sum of the estimated resale value of these components, financing companies can be ensured that RV is at least as high as this sum, despite a lack of BET resale data for the time being. CALSTART developed a financial model to evaluate the RV of BETs component by component, using reasonable degradation rates provided by industry partners. According to the model, a substantial RV expectation is observed for a BET when component resale value is considered, especially in later years of the truck’s life but also early in the typical financing term. Specifically, the modeled BET’s components together retain 15–25 percent of the truck’s initial value by Year 5—a better outlook than those used by lenders in their current underwriting processes. This RV retention is close with diesel trucks’, which is around 30 percent and likely to decrease in the future as BETs continue to become more cost-effective and favored by regulations. Furthermore, due to ongoing value in the battery during its second-life applications, BETs retain higher RV compared to diesel trucks after the Year 8 mark. This RV benchmark based on BET component resale is supported by innovative market activities of numerous battery second-life companies, like Zenobē and Connected Energy, who are capitalizing on the $2–$2.5 billion opportunity represented by the supply of used electric-vehicle batteries by 2030.
CALSTART
Financing Fleet Electrification: Battery-Electric Truck Component Resale
calstart.org
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