Explainer
Financing Fleet Electrification: GovernmentBacked Loan Guarantees Can Unlock Bank Financing by Mitigating Risk By Kabir Nadkarni May 2024
Executive Summary Since passing the Inflation Reduction Act, the Biden administration has taken significant steps to unlock financing for low-carbon technologies. For example, the Treasury Department formed the Climate Hub with a mandate to “[leverage] financial risk mitigation to confront the threat of climate change.” Similarly, the Department of Energy Loan Program Office’s authority to extend loans to emerging clean energy technology companies increased by tenfold in 2022, from $40 billion to $400 billion. Finally, in April 2024, the federal government announced a $5 billion award of funds to the Coalition for Green Capital, which represents state and local green banks nationwide, to finance qualifying clean technology projects and companies. Yet, financing of clean commercial transportation remains sorely underdeveloped—while around $4 billion has been invested in the sector, more than $60 billion is needed by 2030 to reach mass-market adoption. Commercial banks have low credit risk tolerance and, in the absence of electric truck resale price data, make the highly conservative assumption that electric trucks will hold little value by the end of their financing term. This “Residual Value (RV) risk” is broadly hindering electric truck fleets from accessing at-scale, low-cost loans—a major bottleneck for mass-market electric adoption. CALSTART recommends that green banks and federal and state agencies implement an innovative financing tool to overcome RV risk and accelerate the financing of electric trucks: loan guarantees. A government-backed loan guarantee for banks and lenders offering loans to electric fleets achieves three outcomes:
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Enables fleet electrification solution providers to access low-cost capital to deploy more electric trucks.
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Protects early investments from first-mover lenders willing to finance the electric trucks sector.
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Educates banks on extending self-sustained loans for electric trucking companies in the long term.
Financing Fleet Electrification: Government-Backed Loan Guarantees
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