Hertz, the rental giant, is making a significant shift in its vehicle fleet by selling off a third of its electric vehicles (EVs), mainly comprising Teslas, and intends to purchase gas cars using the proceeds from the sales. The decision to downsize the EV fleet is attributed to lower demand for EVs and unexpectedly high repair costs.
Key Takeaway
Hertz is selling off a substantial portion of its electric vehicle fleet, primarily consisting of Teslas, due to reduced demand and unexpected repair costs. The company aims to offset the financial loss incurred from the sale in the coming years. This move underscores the evolving dynamics in the electric vehicle market and the operational challenges faced by rental companies in managing alternative fuel vehicle fleets.
The Sell-Off and Financial Implications
The process of selling off the EVs commenced last month and is expected to continue until 2024. Notably, these vehicles are being offered at substantial discounts, as highlighted by several electric vehicle-focused blogs. Hertz has disclosed in a filing that it anticipates incurring “approximately $245 million of incremental net depreciation expense related to the sale,” signifying a significant financial setback. Despite this, the company is optimistic about recouping the loss in the forthcoming years.
Factors Influencing the Decision
Hertz’s move to reduce its EV fleet comes amidst a slowdown in the growth of electric vehicle sales from previous record levels. The announcement also follows recent remarks from Hertz’s global CEO, Stephen Scherr, regarding the challenges posed by high repair costs, particularly due to the extensive use of Teslas by Uber drivers, and substantial depreciation resulting from Tesla’s substantial price reductions.
Unfulfilled Plans and Future Outlook
Two years ago, Hertz unveiled plans to procure 100,000 EVs from Tesla by the end of 2022, which was anticipated to elevate the company following a tumultuous bankruptcy period and contributed to propelling Tesla’s valuation beyond the $1 trillion mark for the first time. However, this ambitious target was not met.
As of October 2023, Hertz had only acquired 35,000 Teslas, with the entire electric fleet comprising approximately 50,000 EVs. Despite this, Scherr affirmed the company’s unwavering commitment to purchasing 100,000 cars from Tesla, even as he acknowledged the diminishing value of its limited EV fleet due to Tesla’s price adjustments.
Besides the unfulfilled promises with Tesla, Hertz had announced plans in 2022 to procure up to 175,000 EVs from General Motors and an additional 65,000 from Polestar. The company has not provided clarity on the impact of its decision to sell a third of its EV fleet on these plans and has refrained from immediate comments in response to inquiries.
