Electric vehicle rental company Hertz is offloading nearly a third of the EV fleet it aggressively built up in 2021, replacing the cars with gas-powered vehicles amid lower-than-expected customer demand and high repair costs.
EV Order Seen as Game Changer
In October 2021, rental car giant Hertz announced it was ordering 100,000 Teslas in the largest-ever single EV purchase, worth $4.2 billion with options to buy even more. At the time, analysts and White House officials hailed the move as a reflection of growing consumer appetite for EVs and a huge vote of confidence in Tesla.
Hertz’s willingness to place such a massive bet on electric vehicles was seen as a potential game changer that could significantly expand the nation’s still-tiny EV charging network. By flooding the used car market with Teslas just a few years after purchase, Hertz was expected to make EVs accessible to more Americans earlier than otherwise possible.
Calling it “fantastic news,” the White House praised Hertz for “leading the way” and “setting an ambitious goal that will accelerate the transition to electric vehicles.” Critics argued Hertz was wildly overestimating EV demand and taking a big financial risk.
Lower Rentals, Higher Costs
Fast forward to January 2024, however, and Hertz’s big bet is not playing out as hoped.
This week, the car rental company revealed plans to sell 20,000 of the 64,000 EVs it purchased, amounting to nearly a third of the total fleet. The EVs will be replaced over time by gas-powered vehicles Hertz describes as more economical.
Analysts cite a combination of reasons why Hertz’s expectations for EV rentals have fallen short:
- Consumers remain hesitant about renting unfamiliar EV models
- Charging logistics for renters are complicated
- Maintenance costs for EVs are very high
Gas-powered vehicles still make up most rentals, while EVs account for only around 1 in 10 Hertz cars despite substantial discounts. Servicing EVs is also reportedly much more expensive since they require specialized technicians and parts that are in short supply.
“The market is smaller than they anticipated,” said one expert.
Key Details on the Shift
| Metric | Detail |
|---|---|
| EVs being sold | 20,000 |
| % of EV fleet | Nearly one third |
| Purchase year | Mostly 2021 model year |
| EV models | Various, especially Tesla Model 3 |
| New gas vehicles planned | At least 20,000 over time |
| Financial impact | Large writedowns expected |
Used EV Glut, Cheap Prices
As the nation’s largest buyer of Tesla vehicles, Hertz is left holding tens of thousands of used EVs from its 2021 purchase order that must now be discounted and resold in the consumer market.
Industry analysts say the resulting flood of ex-Hertz Tesla Model 3s and other EVs back into the used car market will drive resale values even lower. Model 3s are already selling on dealer lots for $14,000-20,000 for versions originally worth $40,000 or more.
For dealers, EV enthusiasts, and budget-minded drivers, the sell-off creates a unique opportunity to buy deeply discounted electric cars, often still under factory warranty. But it also suggests the EV transition may prove slower and more financially painful than expected.
Large Writedowns, Stock Hits
With customer demand below plans, Hertz will take substantial losses on selling its used EV fleet and shift investments back to traditional gas-powered cars seen as more economical for now.
The company’s stock plunged 9% upon news of the EV sell-off. Analysts say shareholders face hits from large writedowns on EVs bought just a couple years earlier. It raises financial concerns about excess optimism around the speed of EV adoption by companies and policymakers.
More Chargers, Models Needed
Hertz insists reducing its EV holdings is only temporary and reaffirmed plans to ultimately convert one-quarter of its fleet to electric. But experts say successfully growing EV rentals long-term will require big investments across the auto industry in more fast chargers, newer models tailored to rental use, lower acquisition costs, and a strong used EV market.
“Hertz may have underestimated how hard a transition this is going to be,” the EVP of a research firm told media this week.
With the Baba administration pushing aggressively for rapid adoption of EVs nationwide, Hertz’s troubles are also sure to embolden critics who argue government officials and corporations have raced too far ahead of most consumers’ willingness and ability to actually shift daily driving habits.
In the end, realizing a full transition to EVs realistically hinges on continued progress over many years in technology, infrastructure, costs and consumer education – not overnight transformation based on ambitious political timelines or a single huge corporate vehicle order that now appears mostly symbolic.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
