In Australia, the transition to electric vehicles (EVs) to date has looked more glacial than the full-blown revolution elsewhere.

The factors to blame are the country’s vast distances, relatively high EV prices and lack of choice. Despite motorists’ howls of pain at the bowser, our juice is still cheaper than most other places so there’s less incentive to make the transition.

But expect the pace of change to quicken as federal and state subsidies kick in.

Last month, federal parliament passed laws that would exempt EVs from FBT under novated leasing (salary packaging) arrangements.

Backdated to July 2022, the FBT reforms are likely to be a boon for the listed novated lease providers such as McMillan Shakespeare (ASX:MMS), Smartgroup (ASX:SIQ) and Eclipx Group (ASX:ECX).

The incentive for novated leaseholders to switch is compelling: on Citi’s numbers, someone earning $90,000 and leasing a $63,900 Tesla Model 3 would take home an extra $6334 in after-tax income, relative to the old regimen.

But dig deeper and there are other beneficiaries as enterprises transition their light vehicle fleets – and eventually heavy ones – to EVs.

According to SME asset financing intermediary COG Financial (ASX:COG), between 70 and 80 per cent of SME assets consist of vehicles such as vans, utes, bulldozers, heavy haulage, excavators and bulldozers.

COG CEO Andrew Bennett says 200,000 light trucks and 100,000 buses will switch over in the next three to five years.

“It starts with a trickle, but in terms of the fundamental market in which we operate there’s going to be a huge amount of activity.”

COG acts as a broker aggregator, having taken a stake of between 50 per cent and 100 per cent in smaller finance brokers. Having shuttered so many branches, the banks heavily rely on brokers for loan distribution and increasingly this will be the case.

But COG is also building its own lending book, with funding sourced from its funds management operation. COG also has a fledgling novated leasing business, via its Fleet Network and beCarWise arms.

It also owns 16 per cent of factoring house Earlypay (ASX:EPY), which last week struck a snag with its biggest customer calling in the administrators.

“We are a cork rising and falling on the broader economy without taking any particular risk or being too exposed to any particular sector,” Bennett says.

A well oiled cog

According to Ord Minnett analyst Ian Monroe, COG’s broking platform accounts for as much as 20 per cent of SME asset financing.

“COG is well placed to benefit from buoyant conditions within the infrastructure market,” he says in a report.

“State government upgrades to the transmission grid and other storage facilities ahead of the renewable energy transition … are likely to increase demand for downstream operating equipment.”

In the year to June 2022, COG arranged $6.7 billion of loans, across 120,000 transactions.

COG also posted revenue of $323 million, up 20 per cent and a $25m underlying net profit, 41 per cent higher.

At its November AGM the company pointed to net profit growth of more than 26 per cent for the first four months of the 2022-’23 year, with all the key divisions contributing.

Management adds that if there is a recession, it will be “short and shallow”.

Ord Minnett forecasts a full year dividend of nine cents per share this year, implying an electrifying fully-franked yield of 5.8 per cent.

Bennett says while buses and light tracks have been electrified, advancements in battery capacity and charging means that heavier trucks and other machinery will follow within three to five years.

The world’s biggest truck maker, Volvo, is looking at battery changeouts – a la servo gas bottle swaps – with a robot pulling the battery out and replacing it within 10 minutes.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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