Hertz shakes the automotive world by deciding to sell 20,000 electric vehicles (EVs), constituting a third of its global EV inventory. Citing CEO Stephen Scherr, “EVs cost Hertz about twice in terms of damage cost repair than a conventional internal combustion engine vehicle.” This strategic pivot, driven by high repair costs and lower-than-expected EV demand, marks a significant departure from Hertz’s earlier commitment to electric mobility. The repercussions extend beyond Hertz’s operations, impacting Tesla’s valuation and raising uncertainties about the future of EV adoption in the rental car industry.
The company spilled the beans on this major decision through a recent official filing with regulators. They spilled the beans that expenses related to fixing up collisions and damages, especially for EVs, were hitting them hard in the latest financial quarter. In response, Hertz plans to use the money from selling the EVs to buy gas-powered cars instead.
Why the sudden change of heart? Well, Hertz’s CEO, Stephen Scherr, gave it to us straight – EVs were costing them about twice as much in damage repairs compared to the regular gas-powered cars. It turns out, keeping up with electric vehicles’ repairs was becoming a real financial headache for Hertz. This revelation is a big deal, considering that the company was all in on the electric vehicle hype not too long ago.
Back in 2021, they made headlines by announcing their grand plans to buy a whopping 100,000 Teslas and then adding up to 65,000 EVs from Polestar over the next five years. However, fast forward to October 2023, and the company only managed to get their hands on 35,000 Teslas. It’s clear that their electrification plans took a serious hit.
Why sell off these EVs now? Well, the electric vehicle market has hit a bit of a speed bump. After the initial hype, sales growth has cooled off. Hertz’s move to cut back on EVs is a reflection of this change in the wind, with lower demand and unexpected repair costs for the Teslas, especially as many of them were used by Uber drivers.
The ripple effect of this decision goes beyond Hertz’s internal matters. Their initial commitment to electric vehicles had a big impact, not just on their own business but even on Tesla’s valuation, pushing it over the $1 trillion mark. But with the change in plans, questions arise about the company’s future partnership with Tesla and other manufacturers, especially considering their plans to buy large numbers of EVs from General Motors and Polestar.
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Investors didn’t take the news lightly, with Hertz’s shares dropping by 5.5% after the announcement. This decline follows a 32% decrease in the stock value in the past year, indicating some concerns about the company’s decisions.
Hertz is optimistic that selling off these EVs will actually improve their cash flow and earnings. They expect better financial results through higher revenue and lower expenses by the end of 2025. The company is banking on seeing an extra $300 million in cash flow between 2024 and 2025.
In a nutshell, Hertz’s decision to sell off 20,000 EVs and go back to gas-powered cars is a big strategic shift. It’s a response to the challenges they faced in the electric vehicle market, particularly the high repair costs and slower demand than they anticipated. This move not only affects Hertz’s plans and finances but also raises questions about the future of electric vehicles in the rental car industry. It’s a story worth watching as it unfolds.
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