A new report from Experian found electric vehicles (EVs) have gained more traction from consumers in the market for a new vehicle due to more options being available.
Experian’s State of the Automotive Finance Market Report: Q4 2023 noted EVs comprised 8.6% of total new retail transactions, up from 7.1% a year earlier.
“While EV prices are still relatively high, new incentive and rebate programs, combined with more affordable options hitting the market, have resulted in a broader range for consumers choosing EVs,” said Melinda Zabritski, Experian’s head of automotive financial insights in a press statement. “As newer models roll out and the infrastructure continues to develop, it’ll be interesting to see how the EV market changes in the near and long term.”
The top five most purchased EV models in Q4 2023 were the Tesla Model Y (31.9%), Tesla Model 3 (17.6%), Volkswagen ID.4 (3.9%), Ford Mustang Mach-E (3.4%), and Rivian R1S (3.4%).
Incentives Drives Markey
As for how the EV’s are being financed, 44.8% of new EV retail transactions were loans, while 30.7% were leases.
For the last three months of 2023, captives encompassed 61.2% of the new vehicle finance market, jumping up from 49.7% a year ago. Banks (20.4%) and credit unions (12.1%) both experienced a dip in market share, down 14.6% and 42.2%, respectively.
On the used car side, credit unions continued to lead at 29.6% in Q4 2023, but down from the same period in 2022 by about two percentage points. Banks were close at 26.7%, while captives increased to 9.6%.
Interest Rates Continue to Climb
The average interest rate for purchasing a new vehicle reached 7.2% in Q4 2023, up just over percentage point from a year ago; the used vehicle rate of 11.9% was up from 10.4% in 2023.
Experian officials noted average loan terms decreased for new and used vehicles. In Q4 2023, the average loan term for a new vehicle dropped 67.9 months from 69.3 months and used to 67.4 months from 67.9 months. Prime borrowers made up more than 68% of total financing in Q4 2023, with prime at 45.2% and super prime at 23.3%.
These two factors have resulted in monthly payments rising—new vehicle to $738 from $720 a year ago, and used vehicles up $2 to $532.
It led Zabritski to state that while consumers may spend more on their monthly payment, the overall cost of a vehicle is much lower.
“With interest rates remaining at elevated levels, it’s natural to see consumers continue to opt for shorter-term loans,” said Zabritski. “As the market continues to change, lenders and dealers need to watch the trends carefully to properly assist in-market shoppers.”
