In October 2021, Hertz made headlines when it announced plans to add 100,000 Teslas to its fleet. This was a huge bet on electric vehicles, and the plan was for more than 20% of Hertz’s global rental car fleet to consist of electric vehicles. Well, just over two years later, it looks like Hertz has had a change of heart, and is backtracking.
Hertz selling one-third of its Tesla fleet
Hertz has revealed plans to sell one-third of its electric vehicle fleet in the United States, and instead invest in gas-powered cars. The company has already started the process of selling tens of thousands of electric vehicles, and that will continue throughout 2024. The company is facing net depreciation expenses of around $245 million related to this decision.
So, why is Hertz backtracking on its Tesla plans? It seems to come down to a few factors — weak demand, high repair costs, and low resale values.
When it comes to demand, Hertz CEO Stephen Scherr has said that interest in electric vehicles is “not at the level” the company anticipated, and that “we may have been ahead of ourselves.” The issue isn’t just demand, though, but also costs and resale value.
Hertz is finding that Teslas are being damaged more than anticipated, and the cost of those repairs is higher than on other cars. On top of that, electric vehicle resale prices have plummeted, and that’s also a big part of the economics of the rental car industry. That’s because of Tesla’s price cuts to keep demand high.
Interestingly, part of Hertz’s plan with Teslas was to lease the cars to rideshare drivers, and that has in fact happened, but hasn’t turned out to be as profitable as expected, due to the same issues as above (the cost of repairs and lower car resale values).
I’m not surprised this hasn’t been a success
The rental car industry is a tough business (especially when you’re constantly getting your customers arrested!). As much as I think the move to electric vehicles in general is great, I’m not surprised to see that this hasn’t worked out.
As Hertz’s CEO explained, when a big part of the rental car business model is being able to resell cars at a reasonable price, that doesn’t exactly work with Tesla’s constant price cuts, since the resale value of these cars just isn’t good.
But I also think there’s a failure on Hertz’s part here. I’d absolutely choose a Tesla over your run of the mill rental car (and I’m far from a Tesla fanboy), yet every single time I’ve looked at the possibility of renting a Tesla from Hertz, it was either outrageously priced, or wasn’t available. No, I’m not going to pay 5x as much for a Tesla as a standard car (especially when their MSRPs aren’t that far off). And never mind that most of the times I’ve looked, they weren’t even available.
That doesn’t even address the general learning curve of people getting into Teslas for the first time, and not necessarily knowing how to drive them (which I’m sure also ties into the issue of these cars frequently sustaining expensive damage).
Bottom line
Hertz is backtracking on its big promise to go electric. In late 2021, the rental car giant planned to add 100,000 Teslas to its fleet, thinking that was the way of the future. That hasn’t worked out as hoped, though, and Tesla is now selling off one-third of its fleet.
The company blames this both on lack of demand from consumers, as well as expensive repairs and low resale costs. While those are very real problems, I also think that Hertz didn’t do a great job both with making Teslas available, and also with pricing them reasonably.
Are you surprised that Hertz hasn’t been able to make Teslas work?
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