In a surprising move, Hertz Global Holdings has announced plans to sell around 20,000 electric vehicles (EVs), including Teslas, from its U.S. fleet, pivoting back to gas-powered cars due to what it cites as weak demand and higher expenses related to collision and damage for EVs.1
Unraveling Hertz’s Electric Plans
Initially committing to the electric revolution, Hertz’s decision to divest a significant portion of its EV fleet comes merely two years after a bold deal with Tesla, reflecting a broader trend of cooling demand for electric vehicles. Despite an earlier goal to convert 25% of its fleet to electric by the end of 2024, Hertz now faces unexpected challenges, with CEO Stephen Scherr flagging concerns about higher expenses, particularly related to Teslas.2
“Hertz recorded elevated costs from its EV fleet in 2H23. Management said the reversal could boost free cash flow by US$250-300 million in 2024-25 and improve corporate Ebitda, but we see the reshuffling as material growing pains,” notes a financial analyst.
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The Bumpy Road for EV Growth
Hertz’s shift underscores the challenges faced by the electric vehicle industry, mirroring the scaled-back production plans of major carmakers like General Motors and Ford. Analysts suggest that Hertz’s move serves as a reality check, prompting a downward reset of expectations for EVs.
“While 20,000 cars isn’t a large number in the total used vehicle market, it does mean Hertz will be taking a major loss on each of these sales while further contributing to the trend of falling used EV values,” comments iSeeCars.com analyst Karl Brauer.
Hertz’s decision to reinvest in gas-powered vehicles comes as a strategic rebalancing act, acknowledging the challenges associated with EVs, including repair costs and hidden expenses. The company plans to use proceeds from the EV sales to acquire gas-powered vehicles, expecting this action to align supply with anticipated demand for EVs better.
“We’re committed to the strategy. It will take more time to execute it,” affirms Hertz CEO Stephen Scherr.
Analyzing the Impact on Industry Sentiments
Hertz’s move reverberates across the automotive landscape, leading to a 4.3% decline in its shares and sparking discussions about the viability and economic challenges associated with widespread EV adoption. Analyst Adam Jonas from Morgan Stanley suggests that Hertz’s decision should serve as a wake-up call to reset expectations concerning EVs, shedding light on the “hidden costs to EV ownership.”
“While consumers enjoy the driving experience and fuel savings (per mile) of an EV, there are other ‘hidden costs to EV ownership,‘” notes Jonas.
Hertz’s shift is not an isolated incident, with other players in the rental car industry signaling similar adjustments. In December, German rental car company Sixt revealed that it had ceased purchasing Tesla vehicles and was selling its existing fleet as part of its regular de-fleeting process. This hints at a broader trend where rental companies reconsider their EV commitments in light of changing market dynamics.
Read: Analysis: What you need to know for your next hybrid or electric vehicle purchase
The Future of EVs in Hertz’s Fleet
Despite the significant reduction in its EV fleet, Hertz remains cautiously optimistic about the future of electric vehicles in its operations. CEO Stephen Scherr emphasizes that the company will closely monitor EV demand both externally and internally before deciding on further acquisitions, potentially altering its agreements with General Motors and Polestar.
“That means its agreement to buy 175,000 EVs from General Motors Co. over the next four years and another 65,000 from Polestar may take much longer to complete,” acknowledges Scherr.
Hertz’s pivot marks a critical juncture, forcing the company to recalibrate its approach to electric vehicles amid market fluctuations and unforeseen challenges. The outcome of this recalibration will not only impact Hertz’s future trajectory but may also influence industry perceptions and decisions regarding the widespread adoption of electric vehicles.
Keep Reading: Grandmother Creates Her Own Electric Car For $24,000
Sources
- “Rental giant Hertz dumps EVs, including Teslas, for gas cars.” Reuters. Nathan Gomes and Joseph White. January 11, 2024.
- “Hertz to sell one-third of EV fleet in shift back to gas-powered cars.” Financial Post. Richard Clough and David Welch. January 11, 2024.