High damage and repair costs in rideshare segment, cautious consumers and Tesla price cuts all factors in Hertz’s plan to sell 20,000 EVs by the end of 2024
Last week’s announcement by car rental service Hertz Global Holdings that it is selling 20,000 EVs from its U.S. fleet sparked a flurry of quick reactions, with implications that go beyond Hertz itself.
The company cited a combination of market factors and unexpected costs for the move, which represented a major about-face from Hertz’s previously stated goal to convert 25 per cent of its fleet to electric by the end of 2024. Instead, Hertz now hopes to sell a third of its electric fleet by the end of this year — which would still leave it with roughly 40,000 EVs.
While some critics view Hertz’s decision as an indication EVs are not viable, the specific details are more indicative of growing pains for a large, early adopter during a fleet transition.
Higher costs and depreciation
Hertz cites higher than expected repair costs from collisions and damage, mainly in the EVs it supplies to ridesharing drivers, as the primary reason for the sell-off.
A second, related factor is higher than expected depreciation due to Tesla’s price cuts for new EVs in 2023. That, in turn, substantially lowered the resale and/or salvage value of the used EVs in Hertz’s fleet. This concern was first flagged by Hertz in October.
In last week’s SEC filing, Hertz states that it expects about US$245 million in charges related to depreciation expenses from the EV sale in the fourth quarter of 2023. The company estimates the incremental cash flow from the sales will generate about $250 million to $300 million in the aggregate over 2024 and 2025.
At the same time, Hertz is clear it is not abandoning its EV transition for rideshare or rentals.
“The Company will continue to execute its strategy around EV mobility and offer customers a wide selection of vehicles. The Company continues to implement a series of initiatives that it anticipates will continue to improve the profitability of the remaining EV fleet,” says Hertz in its latest filing.
These initiatives include expanding EV infrastructure and relationships with EV manufacturers “particularly related to more affordable access to parts and labor, and continued implementation of policies and educational tools to help enhance the EV experience for customers.”
Hertz offers EVs from Tesla and Polestar at select locations in Canada. Electric Autonomy reached out to the company for comment, but it did not reply as of publication.
Growth plans tempered
In 2021, Hertz Global said it would order 100,000 Teslas by the end of the following year – as well as 65,000 units from Polestar over five years. In the fall of 2022, it struck another deal, with General Motors, to purchase up to 175,000 EVs within five years.
At present, Hertz says 80 per cent of its electric fleet are Teslas. It also says that, given its change in strategy, the deals with Polestar and GM will take longer to complete.
Hertz’s initial aggressive EV strategy hinged, in part, on a complimentary rideshare initiative that would supply EVs to rideshare drivers in markets with EV-favourable licensing benefits. One of the most well-known partners in the EV rideshare program is Uber.
But it turned out that a lack of driver experience and education with EVs, coupled with the more taxing usage associated with rideshare, resulted in an increase in problems (and costs) for that part of its fleet.
Hertz’s initial response, according to its Q3 filing, was to “moderate our rideshare growth and re-underwrite the rideshare driver base.” It also moved more EVs into its leisure channel. However, insufficient customer demand in that segment left it “over fleeted with EVs.” Consequently, the rate of return for its EVs fell, further hurting the bottom line.
Specific impacts on the Canadian market as a result of these moves remains unclear. The 20,000-EV sell-off applies solely to its U.S. fleet.
Uber, which has committed to having a zero-emission fleet in all major North American cities by 2030, says that for now it is business as usual in Canada.
“Hertz has informed Uber that this sale is focused on consumer rentals and will not impact the availability of electric vehicle rentals accessible for drivers on the Uber platform,” said an Uber spokesperson in an email to Electric Autonomy.
“Hertz is just one of the companies that Uber works with that provides drivers with best-in-market EV rentals. We also have EV rental partnerships with Louelec and Autzu.”
Further details on Hertz’s overall plan may be revealed when it announces its Q4 results on Feb. 6. According to last week’s statement, it says it will “continue to actively manage the total size of its EV fleet, as well as the allocation of EVs among customer segments, including leisure, corporate, government and rideshare.”
It’s also going to be busy selling those 20,000 EVs. Right now, it’s used car website currently lists more than 700 EVs on sale including BMW’s i3, Chevrolet’s Bolt, and Tesla’s Model 3 and Model Y SUVs. Some Tesla Model 3s are being sold for as low as US$20,000.