Hertz Shifts Gear: Electric Rentals Out, Gas Models In

Jan 11, 2024 11:26 PM EST

A MAN HOLDING THE STEERING WHEEL WHILE DRIVING — (Photo : PEXELS/Tobi )

Hertz will sell 20,000 electric vehicles (EVs) from its rental fleet, including Teslas, Chevrolets, and BMWs. According to the regulatory filing made on Thursday, the renowned rental giant opts to replace this substantial electric fleet with vehicles powered by gas. The primary catalyst for this strategic shift, as articulated by the company, revolves around elevated repair costs.

Hertz Drops Rentals for Electric Vehicles

Perceptive industry analysts from Morgan Stanley conveyed a cautionary sentiment, interpreting Hertz's decision as a potential harbinger within the EV market. Their analysis, shared with Reuters, contends that expectations concerning the electrification of the transportation sector might necessitate a recalibration towards a more conservative outlook.

This development aligns with the recent trend observed in the electric vehicle landscape, where both Ford and GM have decided to decelerate the production and delivery of their respective EV models. Hertz drops 20,000 rental electric vehicles in favor of cars powered by gas. This exclusion includes Teslas.

Other brands excluded from its rental fleet including Chevrolets and BMW, saying it will replace them with gas-powered vehicles, according to regulatory filing on Thursday. The company cited higher repair costs as the primary reason.

Reports from Newsweek shared, it could be seen as a warning in the EV market, Morgan Stanley analysts told Reuters, saying expectations for the electrification of the transportation sector need to be reset downwards. That follows news of both Ford and GM slowing their production and delivery of their respective electric vehicles.

In the year 2022, Hertz initiated the acquisition of 100,000 vehicles from Tesla, followed by an additional order for 65,000 Polestar electric vehicles (EVs) scheduled for the next five years. Within its online platform, the rental giant is offering select Tesla Model 3s at an attractive price point of approximately $20,000, representing about half the cost of a brand-new version.

These pre-owned EVs are partially eligible for the Inflation Reduction Act-related rule-making EV tax credit, giving purchasers the chance to increase the deal's value.

What It Is for Hertz: Major Decision

Reports stated that at the JPMorgan Auto Conference last year, CEO Stephen Scherr indicated challenges arising from increased expenses associated with its electric vehicles (EVs), particularly those from Tesla.

To address safety concerns and adaptability issues following front-end collisions by some users, Hertz took measures such as restricting torque and speed on the EVs. These adjusted vehicles were then exclusively offered to experienced users on the platform.

The company's stock experienced a decline of approximately 4%, encompassing not only vehicles from Tesla but also those from the Swedish EV manufacturer Polestar. Concurrently, Tesla's stock registered a decrease of around 3%.

Furthermore, Hertz anticipates incurring charges of about $245 million in the fourth quarter of 2023, attributed to depreciation expenses associated with the sale of electric vehicles.
Its choice emphasizes the challenging path electric vehicles (EVs) are navigating as their sales expansion decelerates, prompting automakers such as General Motors and Ford to reduce their production projections.

In a statement Morgan Stanley analyst Adam Jonas observed that Hertz's recent action is yet another signal pointing towards the necessity of downward adjustments in expectations for electric vehicles (EVs).

While individuals may find satisfaction in the driving experience and cost savings (per mile) offered by an EV, Jonas pointed out that there exist undisclosed expenses tied to ownership of electric vehicles.

In his reported commentary, Ed Kim shared his viewpoint, emphasizing that for individuals who value the Tesla product but wish to avoid direct contributions to Elon Musk's financial resources, an alternative exists.

He highlighted that since these vehicles are being replaced by gas cars, Hertz's sale of these units does not translate into new Tesla sales to replace them. Kim serves as the President and Chief Analyst at AutoPacific, on the professional networking platform LinkedIn.

In the assessment provided by Ed Kim, individuals are reminded that, despite the requirement to make payments to Tesla for internet access and contribute valuable data, those who have longed for a Tesla but held reservations about Elon Musk might find an ex-Hertz Tesla to be a fitting alternative.

Kim further notes that these vehicles are expected to qualify for the federal used EV tax credit, representing 30 percent of the price, up to $4,000, thereby enabling additional significant savings.