Setting Residuals on EV's is Down Right Scary RightNow

What is more scary than myself with a knife in my hand trying to carve a pumpkin? Trying to forecast accurate residuals or loan loss forecasts on EV’s at the moment, especially using the “same old, same old methodology” that many are temped to use. To a large degree, those that are leasing or lending on EV’s are playing with fire if that’s their approach. There’s lots of risks to consider and also some potential upsides that no one really knows if they will come to fruition or not, but if managed correctly, could be beneficial to those who stay the course.

GM and Ford recently announcing pull backs on their near term EV plans was somewhat comforting to me as a fan of vehicle leasing and all that’s connected to it. Pushing inventory on dealers and consumers that’s not really willing or even able to digest it all is a recipe for used car value woes if not properly accounted for, not to mention hard on the Big 3’s and lender’s financials in the near term.

We have all been spoiled a bit the last few years with inflated used car values and the resulting residual/loan loss cushioning that has provided. With EV’s, Tesla and some others substantially cutting EV prices this year on a regular basis, combined with new government incentives, has cast doubt on residuals set on EV’s currently on the books. While that volume is probably relatively small so far, I’d venture to say there’s some red to be had at lease maturity. However, a push strategy would likely only mean more to come and leasing benefits provides a slippery slope for OEM’s wanting to push aging EV inventory.

Those both inside & outside of the OEM’s captives need to keep their hands on the wheel on a daily basis right now. Keep in mind, the true judgment of a good residual often doesn’t come for a few years down the road and when the landscape is drastically changing, knowing how to plan for inevitable potholes ahead will determine the winners from the losers. Exiting has often been proven the wrong course also, though I wouldn’t be surprised to see banks continuing to take that course in some cases. Like with stocks, doing so gets you all the losses on what you have and none of the potential gains achieved by deeper planning and hedging the risks until things find a balance, all while staying in the game to some degree. I have lots of ideas and thoughts around this, but I’m wordy and LinkedIn limits my character count. 😊 Nonetheless, it’s going to be an interesting ride, especially for auto finance risk planners and my remarketing colleagues. Hold on. 👻 And Happy Halloween!