Automakers looking to fund their transition to electric vehicles could potentially borrow about $28 billion in green bonds globally this year, double the amount raised by the sector last year, according to Bloomberg Intelligence.
The sales surge will partly be driven by a large number of automakers’ bonds maturing this year that could be rolled into green bonds, Bloomberg Intelligence analyst Christopher Ratti wrote in a note on Monday. Up to $132 billion of bonds from auto manufacturers mature this year, the most in the next five years, according to BI analysis. Maturities this year average about $11 billion a month, with March and April having the highest dollar amounts.
In addition to the large maturities, automakers are tapping debt markets to finance cuts in carbon emissions and the transition to electric vehicles from internal combustion engines.
“The commitment to carbon neutrality remains a key component of our expectations that green-bond issuance could potentially double for automakers this year,” wrote Ratti.
The global sustainable debt market posted its first decline on record in 2022 as higher borrowing costs and heightened skepticism about the label turned borrowers away. Green bonds saw the smallest year-on-year decline, dropping 11% to about $480 billion, propped up by a surge in sales from China. Meanwhile, debt investors rewarded the automotive sector with the largest price benefit on average for selling green bonds earlier in 2022, but now the so-called greenium has vanished across sectors and may impact sales this year.
Volkswagen AG, Honda Motor Co., General Motors Co. and Ford Motor Co. were among the 10 largest issuers of green bonds from the auto sector last year. Volkswagen issued the most — more than $4 billion — and might not need to return this year, according to Ratti. Honda and GM, which tapped the green debt market for the first time last year, came in second and third in issuance and there may be potential for more sales.
While Honda doesn’t have specific plans for the issuance of the next set of bonds, as funding needs arise, the company will “consider raising funds with the most appropriate method and in the most appropriate market while taking various factors into consideration such as the market, environment and funding costs,” it said in an emailed statement.
Meanwhile, Toyota Motor Corp., which tapped the green bond market through one of its units for years but hasn’t had any issuance since 2019, could also revisit the market, wrote Ratti. Mercedes-Benz Group AG, which didn’t come to the market last year, could also issue more green bonds to fund expanded electrification needs, he noted.
In an emailed statement, Mercedes-Benz said that green bonds help the firm align its “ambitious decarbonization goals” with its financing strategy, by giving investors the opportunity to fund projects that accelerate its transition toward emission-free mobility.
BMW AG and Nissan Motor Co. may also consider green bonds this year as they look to meet lower emissions and EV targets, according to Ratti.
A Nissan representative said the company would like to “continue to have regular access to the corporate bond market” but has not made any decisions regarding its next issuance at this time. “Consideration will be given to the future bond issue environment and funding needs,” the representative said.
The company is looking to raise 200 billion Japanese yen in sustainability bonds at the moment. Proceeds from the sale will help finance eligible green projects that may include the design, development and manufacturing of electric vehicle and autonomous driving, the company said in a Friday statement.
GM and Toyota declined to comment. BMW did not immediately respond to a request for comment.
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