Commercial fleet electrification: How to navigate financing

This article is sponsored by Wells Fargo.

The global transition from internal combustion engines (ICE) to battery electric vehicles (BEV) will be a historically significant event in transportation. Commercial electric vehicles are experiencing notable growth, and, by some estimates, will reach 43 percent of sales for medium and heavy-duty vehicle total sales by 2040. California state officials announced that one out of every six new vehicles sold for services that include last-mile delivery, freight transportation and school buses in 2023 were zero-emissions. Many businesses are considering transitioning their commercial fleet to BEVs for a variety of reasons including the potential for lower operating costs, a desire for sustainability in their own operations, gaining a competitive edge with sustainability-minded customers and keeping up with regulations.

Our clients want to have informed conversations that help them find solutions that align with their sustainability goals and present economic advantages in the long run. However, financing such a transition requires careful consideration of various factors, from vehicle costs to infrastructure requirements. Here are our top five topics to discuss with your financing partner when exploring your commercial fleet transition:

Total cost of ownership (TCO) analysis

Before diving into financing options, it’s essential to conduct a comprehensive TCO analysis comparing electric and traditional vehicles. While electric vehicles and the related infrastructure typically have higher upfront costs, they offer significant savings in operational expenses, such as fuel and maintenance. Financing institutions may consider TCO when assessing loan terms and interest rates. Many online tools and calculators are available to help businesses estimate TCO for different electric vehicle (EV) models. They can consider factors such as electricity rates, maintenance costs and resale value—but not all are tailored to your business needs. Be sure your financing partner has an updated methodology and can explain all the elements that are relevant and specific to your needs.  

Fleet assessment

In just a few years, choices have multiplied in the commercial BEV market. It is important that companies optimize their fleet decisions based on the needs of the business. This includes a review of vehicle cost, capabilities (including range and duty cycles) and longevity (including resale values). Lenders will want to understand the fleet assessment analysis when evaluating lending options for your fleet.   

Infrastructure investment

A transition to a BEV fleet will require a significant and well-planned investment in charging infrastructure. It is also a major undertaking. Charging stations, whether installed onsite or at third-party locations, may require significant upfront investment and considerable coordination with your utility and your charging equipment supplier. Businesses should assess their charging needs, including hardware, software and maintenance/warranty programs. They should consider factors such as fleet size, daily mileage and charging speed requirements. There may be specialized financing for specific technologies as lenders seek to meet their clients’ and customers’ needs. Wells Fargo has collaborated with manufacturers to offer flexible financing for customers who are leaning into fleet electrification but need a rapidly deployable and nonpermanent infrastructure solution for their charging operations.

Tax credits and incentives

There are numerous federal, state and local grants and incentives, as well as incentives from local utility companies, that are often stackable and could reduce your upfront costs for BEVs and infrastructure, if they qualify. Federal programs such as the Inflation Reduction Act’s EV tax credit include a federal tax credit of $7,500 to $40,000 per electric vehicle (depending on weight rating) purchased for use in business operations. Some lenders may be able to take this credit on lease financing and pass that benefit to you through lower lease payments. Additionally, your business may qualify for the federal Electric Vehicle Charging Infrastructure Grants, as well as accelerated depreciation benefits and tax deductions for electric vehicle charging equipment installation. State-level incentives such as California’s Electric Vehicle Charging Station Financing Program and Hybrid and Zero-Emission Truck and Bus Voucher Project may provide financial support, an average of 21 percent in savings per vehicle, for purchasing EVs. Taking advantage of available tax credits and incentives may significantly offset the costs of transitioning to electric fleets. Awareness and knowledge of these incentives is important in developing a financing strategy for your fleet conversion. 

Risk management and long-term planning

Transitioning to electric fleets likely involves business risks and uncertainties, ranging from technological advancements to regulatory changes. Businesses and their financing partners should develop risk management strategies and long-term plans to mitigate potential challenges and ensure the sustainability of their investments. This includes staying informed about EV market trends, regulatory developments and advancements in battery technology. Collaborating with experienced lenders can provide valuable insights and guidance throughout the transition process. Additionally, all businesses should consider scalability and flexibility in their electrification strategies, allowing for future expansion and adaptation to evolving market dynamics.

A strategic approach is the right one. Financing the transition of commercial fleets to electric vehicles can be a significant opportunity to prepare your business for the future. Having a financing partner to help with assessing various factors, including total cost of ownership, flexible financing solutions, infrastructure investment, tax credits and incentives, and risk management will help align your transition with your overall business financial goals. By understanding these key aspects and leveraging available resources, you can navigate the complexities of fleet electrification more effectively.

Opinions and information included in this article are general and not intended to provide specific advice or recommendations for any individual or entity. Contact your banker, attorney, accountant, and/or tax adviser with regard to your individual situation. The author’s opinions do not necessarily reflect those of Wells Fargo Equipment Finance or any other Wells Fargo business. All transactions are subject to credit approval. Some restrictions may apply.