Lombard talks Green Finance

Lombard talks Green Finance

We’ve asked asset finance companies and lenders what operators can expect from the finance market when acquiring their first EVs over 3.5 tonnes. Lombard’s MD Ian Isaac told us about its Green Finance Initiative, which will help operators while also helping to decarbonise NatWest’s funded assets.

How will firms cover three times the cost of their monthly repayments? Will operators have to replace the trucks in their fleets very gradually so that their cost increases are incremental and can be passed on in rate rises more easily?

Lombard is committed to supporting customers with their transition to net zero. This includes funding for commercial transport which we see as a core area to support. Electric trucks are more expensive for businesses but many firms take into consideration the total cost of ownership which includes lower running costs. This is factored into our credit assessments to ensure our facilities are structured appropriately to support our customers’ cashflow requirements.  There also are some areas where electric commercial vehicles are more appropriate, for example urban last mile deliveries. As more electric trucks are purchased, prices are likely to fall and usage will expand as the technology and user experience develops.

Is the market waiting until the price of EVs falls?

Businesses will naturally be considering costs and when the right time to invest in EV is for them, particularly noting that asset prices are expected to fall over the medium term. Many businesses are also actively exploring how zero emitting transport could form part of their transport mix, particularly those firms with more progressed ESG strategies and those connected to these strategies via the supply chain. OEMs are investing significantly in their EV capabilities that will accommodate heavier payload for longer ranges. There are also plug in vehicle grants for various commercial vehicles including trucks and the Government recently announced a £200m boost, both of which will help stimulate investment.  

How does uncertainty over residual values affect the proposition? Will asset finance be priced in such a way as to ignore any potential second life value?

Setting residual values on EV trucks is more challenging than their ICE counterparts with EVs having immature and less certain re-sale markets.  There remains uncertainty over replacement battery costs and how long they the batteries will last, alongside newer better technology coming along.  Approximately 30% of the cost of an electric commercial vehicle is the battery and the life of this is predicted to be somewhere between 5 and 10 years depending on how the truck is used.  We work closely with customers to help frame appetite to residual value and risk that’s right for them.     

What’s the finance market’s feeling toward haulage at the moment? Since the 2008-9 crash, finance houses have seen haulage as a vulnerable market. How then do banks feel about extending three times the credit for assets than they would have to previously?

Lombard is proud to have been a consistent presence and be an active funder in the haulage market for many years. This support has been provided through a backdrop of every changing macroeconomic events including Brexit and the Covid pandemic, where we proactively offered all our customers a six-month repayment holiday. We remain committed to support this important sector and the communities it serves, including providing much needed funding to support the decarbonisation of transport. 

We see Transport and Logistics as a core sector for us and have enhanced specialism and understanding of the industry. NatWest Group (which Lombard is a part) is also undertaking tailored training in conjunction with Warwick Manufacturing Group to provide further capability and understanding to our colleagues on a number of topics in relation to clean transport.

In practice does this mean finance houses will become ever more selective about their customers? Or perhaps about how many credit lines that customer can have? 

Lombard will continue to support the haulage industry and the associated supply chain industries, with many customers enjoying the benefit of a credit line facility tailored to support their capital expenditure programmes.   

Is asset finance always secured against the vehicle itself? Will there ever be other collateral requested?

The asset remains the principle and only security for the vast majority of the funding provided to our customers, enabling them to preserve other security to support valuable working capital facilities.    

Are trucks covered by your Green Asset Finance products available from Natwest/Lombard?

We launched our Green Asset Finance product to the market in February, providing fee-free funding to SMEs for a wide variety of green and sustainable technologies, including for zero emission transport (this includes trucks over 3.5 tonnes). We would encourage customers to speak to their Lombard Relationship Manager to discuss how Green Asset Finance could help support the transition of their business to support net zero.      

 

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