Car-rental giant Hertz raised eyebrows last week with the surprising announcement of its intention to sell approximately a third of its global electric vehicle (EV) fleet, marking a notable departure from its earlier commitments to EVs.
This strategic shift seems to mirror a broader trend within the automotive industry, where companies are adjusting their stances on EVs in response to changing market dynamics. Several automakers, in light of mounting inventories and slowed consumer spending, have scaled back production or reduced prices.
Last October, General Motors and Honda Motor scrapped joint plans to develop affordable EVs due to weakening demand. Concurrently, Tesla, throughout 2023, globally reduced the prices of its cars to stimulate demand amidst a crowded EV market.
Hertz’s CEO, Stephen Scherr, explained the move during an interview with CNBC’s Jim Cramer on “Squawk on the Street,” stating that the decision followed substantial purchases of Tesla and GM EVs. Scherr emphasized that Hertz is “responding to the reality, which is we’re trying to bring supply in line with demand.”
Acknowledging Tesla’s position as the best-selling car, Scherr expressed optimism that EVs, particularly Tesla’s, would eventually become the preferred choice for rental cars. However, he admitted that the transition might not happen as swiftly as anticipated.
Hertz plans to sell around 20,000 electric vehicles, using the proceeds to acquire internal combustion engine cars. The company anticipates incurring a $245 million incremental net depreciation expense but expects a corresponding improvement in its bottom line over the next two years by replacing EVs with internal combustion engine vehicles.
The decision aligns with Hertz’s earlier indication, made during its third-quarter earnings call in October, of a slowdown in EV purchases. The company cited declining Manufacturer’s Suggested Retail Prices (MSRP) for EVs as a factor affecting the fair market value of its cars. At that time, approximately 11% of Hertz’s fleet comprised electric vehicles.
Hertz, known for its bold move in October 2021 to expand its EV fleet with an initial order of 100,000 Teslas by the end of 2022, faced criticism for this recent reversal. Analysts, including Wedbush’s Dan Ives, termed the decision a “black eye for Hertz,” suggesting that the company misjudged the marketing and rollout impact of introducing EVs, particularly Teslas, to its customers.
Hertz had initially envisioned customers being eager to rent EVs for various reasons, such as environmental concerns, gas price considerations, or trying the technology for the first time. Scherr acknowledged that while such experimentation was occurring, the demand did not justify maintaining the current EV fleet size. The recent price reduction by Tesla also influenced Hertz’s decision, impacting depreciation.
Hertz had previously aimed to have 25% of its fleet as EVs by the end of 2024. Scherr defended the change in direction, emphasizing it was a strategic decision driven by financial performance and operational integrity. He stated, “A smart company is one that’s agile, makes an adjustment, takes away the distraction—financial and operational—and moves on.”
