A green mobility bank could give EVs the spark they need

People often describe the barriers to electric vehicles as a "chicken or egg" problem. Consumers are hesitant to buy EVs because they do not think there are enough places to charge. Property owners are hesitant to install chargers because they are not convinced there are enough EVs on the road to justify the investment. Which comes first — the vehicles or the charging infrastructure?

One way to help address this dilemma is to look at a common problem that is holding back EVs and the infrastructure that supports them: access to capital.

The consumer thinking about going electric for their next vehicle and the property owner thinking if it is worth putting in a charger are loath to invest money into something they see as risky.

Access to low-interest financing can overcome the initial hesitancy and get the market for a new technology moving. Reducing risk for investors and lenders will encourage more investment at more favorable terms. If the financing terms are more favorable, more people will adopt the technology than otherwise would.

An example of this strategy is in practice in Michigan. Michigan Saves, the state's nonprofit green bank, has been operating for over a decade, making rooftop solar projects and energy efficiency projects such as LED lighting replacement, weatherization and HVAC upgrades possible for residential and commercial customers by connecting the prospective projects with lenders. Michigan Saves enables financing that wouldn't otherwise exist by maintaining a loan-loss reserve that reduces the risk for lenders.

The state can do the same by working with industry partners, financial institutions and groups such as Michigan Saves to create a "green mobility bank" specifically targeted toward filling financing gaps for EVs and charging infrastructure to accelerate the state's transition toward electric mobility.

Michigan currently has about 5,000 all-electric vehicles on the road. To support them, there are over 320 fast charging ports, but thousands will be needed if EVs are to become as common as their internal combustion counterparts are today.

The green mobility bank concept can supercharge the growth of the EV market by unlocking private capital. Some other states are already doing similar things. For example, the Connecticut Green Bank offers customers loans for chargers and energy technologies that can work in concert with vehicles to lower a household's energy bills or emissions footprint, like heat pumps and battery storage. The loans are no money down and, at around 4.49 percent annual percentage rate for a five-year loan, comparable to the average car loan rate of around 5.2 percent for the same length.

As the home of the auto industry, Michigan has the opportunity to pioneer a green mobility bank. And the time is right. Companies including General Motors and Ford are investing heavily in electric vehicles, and the Biden administration has announced it plans to direct $174 billion in various programs to incentivize EVs around the country. Michigan is likely to receive an influx of investment for EVs, providing a perfect opportunity to capitalize a green mobility bank.

There are challenges that a green mobility bank could set out to tackle.

1. Upfront costs: EVs typically have higher upfront costs than comparable internal combustion vehicles, with sticker prices for several thousand dollars more. However, when accounting for fuel cost savings and reduced operational costs, the total cost of ownership of an electric vehicle is often lower than for an ICE vehicle — by anywhere from $6,000 to $10,000 over the lifetime of the vehicle, according to some estimates.

We see the same problem in the energy efficiency world: Buying a more efficient heating, ventilating and air conditioning system, for example, has high upfront costs but over the long run saves money through lower energy bills. Financing options supported by a green mobility bank can help mitigate sticker shock.

2. Tax incentives: Existing tax incentives for EVs are out of reach for many people. All-electric and hybrid vehicles are eligible for federal income tax credits of up to $7,500, but those provide no financial assistance for people who have lower tax liability. Although a green mobility bank can't provide tax credits, it can connect ordinary people with affordable financing plans, lowering the cost of switching to an EV in a similar manner to the federal tax credits.

3. Home chargers: Many homes do not have the right electrical setup to install chargers. A home charger may require rewiring for the right voltage, which can be expensive. Even if an EV comes with a free charger or low-cost charging installation, the owner's home may have outdated electrical wiring.

Access to low-interest financing or grants to pay for these upgrades can help get consumers over this hump.

4. Range anxiety: If range anxiety is going to be solved, fast chargers need to be more commonplace so people are not afraid of getting stuck. But fast chargers are expensive, and the private sector often won't invest in charging stations as long as utilization rates remain low.

Utility rebates have helped hundreds of charging stations get built, and those programs should continue, but a green mobility bank would help fill the gap until utilization rates are high enough to unleash the private sector to build much more charging infrastructure.

There has been enormous enthusiasm over EVs recently. Beyond the Biden administration's multibillion-dollar proposals, Ford and GM have made significant commitments to shift more and more toward EVs. All of this might make electric mobility seem inevitable. But big policy actions like a green mobility bank can make the transition toward EVs easier, faster and more open and affordable for all. We can take on the chicken and the egg at the same time.