KBRA UK (KBRA) has released a report on the European auto market as it continues to migrate towards removing carbon emissions from its entire vehicle fleet and how new hybrid-powered (HEV) and battery electric vehicles (BEV) have grown dramatically as a result.

The market achieved its first green auto ABS deal in February 2023 with a transaction that exclusively contained hybrid- and electric-powered vehicle-backed loans sold to investors.

However, on further examination of recent European auto ABS transactions, there appears that a steady greening progression was already underway. In this report, KBRA examines the increased use of alternative energy (which includes hybrid and BEVs) vehicles in securitisation transactions.

Key Takeaways

  • Alternative energy vehicles (HEV and BEVs) accounted for more than 50% of new European vehicle registrations in Q4 2022, the first time they surpassed traditional petrol and diesel fuel types. BEV sales reached a record high in the UK, becoming the second most popular powertrain in 2022, surpassing diesel vehicles. This trend is largely attributed to stricter government tailpipe emission standards for new vehicles.
  • There is an increase in the amount of hybrid (HEV) and battery electric vehicles that are included within securitisation collateral pools. Inclusion of these power types ranges from close to zero to over 40%, with the first fully hybrid European transaction issued in February 2023 with collateral from Italy.
  • A green discount does not exist in European auto ABS as there currently appears to be no significant differentiation in pricing between those containing greener and those with fully traditional powered auto collateral. Despite strong interest from ESG investors, it appears credit factors drove pricing, resulting in final credit spreads that were comparable to other transactions with lower BEV concentrations.
  • There is an uneven but increased level of disclosure on the breakdown of the collateral pool by fuel type and emissions levels of the underlying vehicles. KBRA has observed some recent transactions provide a detailed breakdown of the underlying vehicles by fuel type, CO2 consumption, and emissions group, but there are still several transactions without any disclosure.
  • Not all transactions are created equally. The proportion of auto leases and loans backed by hybrid and electric-powered vehicles in new securitisations are driven by many underlying characteristics of the portfolio. These can include (i) the split of new versus used vehicles in the portfolio, (ii) the vehicle type with many securitisations containing meaningful proportions of commercial vehicles, (iii) leisure vehicles alongside passenger vehicles, (iv) the original equipment manufacturer (OEM) alternate energy vehicle product offering, and (v) country of issuance.

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