In the modern-day rush to embrace sustainable and innovative driving solutions, Hertz, a giant in the car-rental arena, made a bold move by announcing plans to significantly bolster their fleet with electric vehicles (EVs), including a whopping 100,000 Teslas in 2021. However, this ambitious journey has encountered unexpected turbulence, leading the company to pump the brakes on their EV expansion.
Challenges in the Fast Lane
The road to electrification is proving to be trickier than Hertz initially projected. The company faces obstacles such as elevated repair costs and significant depreciation of the electric vehicles.
“Our in-fleeting of EVs will be slower than our prior expectations,” revealed Stephen Scherr, Hertz’s CEO, during a recent third-quarter earnings call. He reportedly continued, “We know the challenges at hand and are working to remedy that, which we can.”
This statement encapsulates the company’s shift from a full-throttle approach to a more cautious and calculated strategy. Initially, Hertz had set a target to convert 25% of its fleet to electric by the end of 2024. However, given the current circumstances, this goal has been dropped. At present, 11% of Hertz’s fleet is electric, and of those, 80% are Tesla vehicles.
Hertz’s Tesla Trouble
Hertz’s plan to integrate Electric Teslas into its fleet has been particularly challenging. The company has observed that rideshare drivers, a significant portion of their customer base, tend to inflict more damage on EVs than anticipated. This has led Hertz to redistribute more electric cars to their regular rental services, inadvertently causing an oversupply that diminished the vehicles’ daily revenue over the last quarter.
Additionally, the frequent price cuts initiated by Tesla over the past year have negatively impacted the resale value of Hertz’s electric fleet.
Stephen Scherr highlighted this issue, stating, “The MSRP declines in EVs over the course of 2023, driven primarily by Tesla, have driven the fair market value of our EVs lower as compared to last year, such that a salvage creates a larger loss and, therefore, greater burden.”
This has culminated in a situation where Hertz’s third-quarter profits could have been “several margin points higher” if its fleet was of a similar size but devoid of EVs.
Despite these challenges, Scherr asserts that Hertz remains steadfast in its commitment to electrifying its fleet over the long term.
A Wider Industry Trend
Hertz’s trials and tribulations with Electric Teslas and other EVs reflect a broader industry trend. After years of skyrocketing sales and demand that seemed insatiable, the electric car industry is facing a moment of reckoning. Electric vehicles are spending more time on dealer lots, prompting automakers to slash prices and offer various incentives.
High interest rates have also played a part, placing the already pricey electric models even further out of reach for the average consumer. Major manufacturers like Ford and General Motors have publicly acknowledged this shift, announcing plans to curtail spending on EVs and adopt a more gradual approach to increasing EV production.