Electric Vehicle Buyers Face Credit, Insurance Speed Bumps

Banks mistrustful of battery life guarantees

Onerous collateral requirements and short repayment periods are discouraging would-be electric vehicle (EV) buyers and putting a damper on the government’s crusade for green mobility.

Commercial banks are enforcing five-year repayment periods for loans they disburse for the purchase of EVs as opposed to the 10-year periods credit officers grant for other vehicle loans. Banks are also requiring EV buyers to provide additional collateral for long-term loans.

The credit policies contrast with the government’s policy shift favoring EVs, which has prompted some businesses and organizations to begin facilitating bank credit for employees looking to buy electric cars. These buyers cover a certain portion of the cost of the EV upfront, and pay the rest using bank loans.

However, commercial banks have shortened the repayment period for EV loans to five years and heightened collateral requirements, discouraging many who had hoped to buy an electric car using credit. The banks reportedly cite concerns over battery life for their tightened lending terms.

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“EV suppliers have guarantees that battery life will last at least eight years, but banks refuse to provide loans for longer than five years,” said a manager at an international NGO based in Addis Ababa. The NGO is working on green energy initiatives and is hoping to buy EVs for its employees.

The lifecycle of EVs equipped with lithium-ion batteries can vary from 8 to 15 years, depending on usage and maintenance, highlighting the need for improved support and understanding of EVs in Ethiopia.

Car importers say that if vehicles are imported directly from manufacturers, they come with warranties of eight to ten years, including battery specifications. However, traders in the market are often unable to offer such guarantees.

The NGO manager observes that repaying loans over the five-year term imposed by banks would cancel out any potential savings on fuel costs.

“The government is campaigning for electric cars but the financing mechanism is not in place. The government’s EV policy is not aligned with financial institutions. It must order banks to create a new policy to finance EVs,” said the manager.

However, a loan officer at the state-owned Commercial Bank of Ethiopia (CBE) argues that financial institutions’ EV loan terms are justified.

“First of all, people are buying EVs because they’re being forced to by the government. Had the government not enacted the ban of fuel cars and made them more expensive, everyone would want to buy a combustion engine vehicle. Second, EV battery life is not guaranteed. Although manufacturers guarantee eight years, since EVs enter Ethiopia some years after the manufacturing date, the battery life is already reduced. The technology is also new and banks do not want to take risks. EVs don’t even have good insurance coverage yet. Therefore, EV buyers must provide additional property as collateral if they want to repay the loan over a 10-year period like they do for other fuel cars,” said the officer.

Despite the government’s ambitious initiatives to boost EV adoption, key stakeholders such as customs, financial institutions, and other public sector actors have yet to fully support these efforts. EVs have only recently been introduced to Ethiopia, and the durability of their batteries is still untested.

There have been around 80,000 EVs shipped into the country thus far, although the government had targeted 100,000 by the end of the year. In comparison, there are close to 1.5 million combustion engine vehicles on Ethiopia’s roads.

Experts point out the high risk associated with EVs, including limited availability of insurance and accessories in the market, leading to greater depreciation and shorter loan terms from banks. Some global data surveys have suggested that hybrids may be more effective than purely electric cars, further complicating the issue.

Still, the government has outlined a ten-year plan to replace gasoline-powered vehicles with electric ones, aiming to deploy over 148,000 domestic EVs and around 5,000 electric buses. This initiative is part of a broader strategy to reduce fuel costs and align with green economic policies, promoting environmental sustainability as the global shift towards electric vehicles continues.