Hertz, the rental-car giant, has decided to unload a third of its electric-vehicle fleet onto the used-car market after EV repair costs came in higher than the company anticipated, and after Tesla price cuts reduced the resale value of the majority of electric cars in its fleet by about one-third. Hertz Chief Executive Officer Stephen Scherr is pumping the brakes on plans to electrify more of its rental car fleet. On a call with investors in October, he said Hertz would have beaten analysts’ earnings estimates if not for the damage that Tesla price cuts and repair costs did to the bottom line. For the fourth quarter, Hertz will take a $245 million charge related to depreciation expenses.
Hertz’s move also will hurt carmakers and their grand ambitions for EVs. In September 2022, the rental company announced plans to order as many as 175,000 EVs from GM over five years. Scherr told Bloomberg that while Hertz will continue to purchase EVs from GM, the agreement announced more than a year ago was non-binding, and his company will buy the cars over a longer period of time. Hertz touted a similar deal in April 2022 to buy 65,000 EVs from Polestar.
Hertz now has 35,000 Tesla vehicles and around 50,000 electric vehicles in its fleet – far shy of the 100,000 Teslas that Hertz originally said it was ordering and expected by the end of 2022. Hertz didn’t specify which type of EVs would be sold but most of them likely are Teslas since Teslas accounted for about 80% of its EV fleet.
While Hertz made a big push into EVs with about 11% of its fleet of nearly 600,000 vehicles being electric, it is now selling about 20,000 vehicles, partly unwinding a push it began in late 2021. It will reinvest some of the proceeds into “purchases of internal combustion engines (ICE) vehicles to meet customer demand.”
In a CNBC interview, Scherr called the decision to sell a third of the EV fleet a “strategic adjustment” and that the company was “responding to reality.” American car renters’ customers aren’t crazy about EVs, especially because people rent cars when they are away from home, making it difficult to plug in their vehicles overnight. Sales growth is slowing as electric models near 10% of U.S. new-car sales. In 2023, Americans bought 1.2 million BEVs, up about 45% from the previous year. Tesla delivered a record 1.8 million units, up roughly 40%. However, the electric vehicle pioneer slashed prices on its cars by roughly $12,000 each in 2023, making used BEV prices lower to establish a traditional spread between new and used cars. This spread has been fatal for Hertz, but it can be convenient for those who are passionate about Tesla.
