A conversation from Act Expo 2024
Speakers: Michael Baer – Managing Partner at NuGen, Eddie Schick – CFO at SHAED
Exploring the Future of Commercial EV Financing: Insights from Industry Experts
The latest SHAED podcast delves into the rapidly evolving landscape of commercial electric vehicles (EVs) and their financing. As SHAED CFO, Eddie Schick, interviews Michael Baer of NuGen Capital, the discussion uncovers the key trends, challenges, and opportunities shaping the commercial EV market.
Trends in the Commercial EV Market
The commercial EV market is on the brink of a major transformation. Despite the initial slow uptake, the increased production from original equipment manufacturers (OEMs) and regulatory support are driving significant changes. Michael Baer highlighted the current state of the market: “EV’s are really going to take off. It’s probably taken off a little bit slower than people expected… but more OEMs are putting new vehicles on the road which I find really exciting.”
“EV’s are really going to take off!”
Michael Baer
Emerging business models like fleet-as-a-service and off-balance sheet turnkey solutions are gaining traction. Baer explained, “You do see new business models popping up. You know your fleet as a service business models, your off-balance sheet turnkey solutions, and that’s what we see at NuGen Capital.”
Challenges in Financing Commercial EVs
Financing commercial EVs presents several challenges, including high interest rates and the inherent risks of new technology. Baer noted, “When you have a new technology or a new type of industry, rates are high. Traditional capital partners may pull back and see what plays out because they view that there’s a risk here.”
Another significant challenge is the uncertainty surrounding the residual values of EVs and battery risks.
When asked about additional roadblocks, Baer elaborated, “I don’t think the finance industry yet knows how to underwrite the residual value. And that’s not just from what’s the second use case or second life of the battery, but are there opportunities to monetize that battery when the vehicle is not being used?”
Impact of Incentives and Investor Interest
State and federal incentives play a crucial role in reducing the upfront costs of EVs, making them more accessible for fleets. “At this point in the market, when the increased cost of an electric vehicle versus a traditional ICE vehicle, you need incentives to drop the upfront cost,” said Baer. He emphasized the importance of state-led incentives combined with federal tax credits to achieve total cost of ownership parity.
Investor interest in sustainable solutions is also reshaping the landscape. Baer compared the shift to commercial EVs to the advent of the iPhone: “It’s a better business model. It’s kind of like when the iPhone came out, it took over the BlackBerry. There’s a better solution.” This influx of capital is anticipated to lower costs and accelerate adoption as more data becomes available to inform investment decisions.
Risk Management and Growth Opportunities
NuGen Capital is positioning itself as a trusted partner for fleet electrification, focusing on providing turnkey solutions, including charging infrastructure and energy management. Baer emphasized their approach: “We want to be your trusted electrification transition partner”. Baer expanded that as a partner, NuGen seeks to support business in going from a single vehicle to a full-fledged fleet with charging infrastructure and operational solutions.
” We want to be your trusted electrification transition partner. …we want to help you get to you transition goals today instead of waiting”
Michael Baer
Assessing technology and OEM risks through due diligence is a critical part of NuGen’s strategy. Baer explained, “We’ll look at the technological risk of the vehicle and the balance sheet of the OEM. We’ll do due diligence, site visits, and test drives to understand what could go wrong because the last thing we want to do is provide a solution to our fleet customers that have an issue.”
Positioning in areas with immediate needs, such as port areas and last-mile delivery, is another strategic focus. Baer highlighted their educational efforts: “We also work with trucking associations really on the education side because they know it’s coming. They don’t love the regulations, but they know it’s coming. But how can we get them over those fears?”
NuGen’s comprehensive approach includes traditional due diligence for fleet customers’ credit quality and a commitment to being a partner throughout the electrification journey. As Baer succinctly put it, “We’re here to help them bridge that and then accelerate it when the time is right.”
Conclusion
The commercial EV market is poised for significant growth, driven by regulatory support, innovative business models, and increased investor interest. However, challenges such as high financing costs, technology risks, and the need for substantial data remain. The insights shared by Michael Baer underscore the importance of strategic partnerships and comprehensive solutions to navigate these complexities.
This compelling discussion highlights the dynamic nature of the commercial EV market and the pivotal role of innovative financing solutions in driving its growth. By addressing these challenges head-on and leveraging emerging opportunities, companies can accelerate their journey towards a sustainable and electrified future.
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Written by Taylor Steele
June 2024
