The tech partnership helping credit unions finance Teslas

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Amid the growing popularity of electric vehicles in the U.S., the Irvine, California-based credit union service organization Origence is partnering with the EV automotive manufacturer Tesla to match buyers in need of financing to eligible credit unions.

The collaboration seeks to capitalize on a continuing theme: Many credit unions are eager to offer auto loans. According to a survey of 359 financial respondents from Cornerstone Advisors, roughly 77% of credit union representatives held that the market segment will be the most important to their business in 2024. The category topped last year's list and was second-most important in 2022 and 2021.

"There was still a competitive appetite for credit unions to extend auto loans to borrowers in 2023, but the market was certainly impacted by the rising rate environment," said Daryl Jones, senior director at Cornerstone Advisors. Most lenders are projecting a flat to slightly improved auto lending environment in 2024 with the anticipation of easing interest rates and potential pent up demand from consumers who may have put off purchases in 2023 due to high interest rates, he said. 

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In states like California, where legislators are working to steer away from traditional gas-powered cars in favor of zero-emission vehicles powered by batteries, some credit union executives seeking to reposition their loan portfolio for the future are leaning on fintech partnerships for help.

Erin Mendez, chief executive of Patelco Credit Union in Dublin, California, has been working with Origence since before the launch of FI Connect, and pushed for her institution to be one of the pilots for the new EV-focused partnership with Tesla.

"California has been on the sooner edge of dealing with energy efficiency [for some time], whether it's in the solar space, EV space or quite frankly the hybrid space," Mendez said. "Being involved with FI Connect is an important initiative from an automotive perspective, and from that of our members."

Despite holding loans to flat or moderate growth over the last year, auto lending accounted for roughly 25% of the $9.7 billion-asset credit union's total portfolio of roughly $6.7 billion, said Richard Wada, chief lending officer for Patelco. Indirect and direct auto loans for both new and used vehicles amounted to more than $1.7 billion for the credit union last year, according to data from the National Credit Union Administration.

Data from Statista Market Insights found that roughly 890,000 battery electric vehicles were sold in the U.S. last year, while Tesla accounted for more than 51% of new passenger vehicles sold in 2022.

In May, Origence officially launched its indirect lending subsidiary FI Connect and began work on integrating into Tesla's allocation engine for distributing loan applications to partnered financial institutions. Consumers seeking to finance their purchase of an EV can select from a suite of different financing options at the point of sale on the company's website or mobile platform, as well as retail stores.

After the firm purchases the loans allocated from Tesla, FI Connect matches — or sells — the loans to partner credit unions. Consumers who are already members of one of the institutions working with FI Connect will be automatically allocated to their credit union, while others are assigned to another eligible lender. Once a consumer becomes a borrower of a credit union, that person automatically becomes a member of that credit union.

Building the allocation engine was no small task for Origence, explained Tony Boutelle, the company's president and chief executive, as the platform needed to accommodate as many as 1,000 credit unions through a streamlined integration with Tesla. FI Connect currently works with 21 credit unions across seven states that are capable of handling roughly $3.3 billion in annual EV lending capacity.

"Tesla has done a great job making it easy for consumers to buy and finance cars from them, [but] what we needed to figure out was an easy way for credit unions to be in that same experience without the headaches of having hundreds of integrations on the Tesla side," Boutelle said.

Banks and other institutions seeking to tap into the growing EV market have launched campaigns such as educational microsites, direct-to-consumer financing options and more, while others double-down on fintech partnerships to broaden reach into fluctuating gas-powered vehicle industries.

Experts with firms like Credit Union Leasing of America, which also works with credit unions to offer indirect vehicle financing options by bridging the gap between dealerships and lenders, say affordability of purchase prices remains a key hurdle for potential Tesla buyers and other models.

The flexibility built into leases allows borrowers to benefit from more favorable terms at a lower monetary commitment, while institutions benefit from lower risk, said Mark Chandler, vice president of business development for CULA.

"For 2024, a 'new normal' is developing where credit unions are focusing on managing liquidity. … Our clients are bringing liquidity to a more consistent pace which enables them to lend while maintaining a steadier portfolio," Chandler said.