In a surprising move, Hertz Global Holdings announced on Thursday that it will be selling off nearly 20,000 electric vehicles from its rental fleet in the United States. The company had previously set a goal of making electric vehicles account for 25% of its fleet by the end of 2024. However, Hertz now plans to replace those EVs with gas-powered cars due to higher expenses associated with electric vehicles.
This decision underscores the challenges facing widespread EV adoption. Despite the appeal of EVs for consumers, there are hidden costs that make scaling electric vehicle fleets difficult for rental car companies. Hertz specifically cited higher collision and damage expenses for EVs compared to gas-powered cars.
Hertz‘s EV fleet is predominantly made up of Teslas, thanks to a 2021 deal where Hertz agreed to buy 100,000 Teslas by the end of 2022. Now, just two years later, Hertz is dumping its Tesla fleet. This is another blow for Tesla, whose stock dropped 3% on the news. The electric vehicle maker had hoped corporate fleets would be a major driver of sales. Hertz is also selling EV models from other brands like BMW, Chevrolet, and Polestar.
The used car market is already feeling the impact of Hertz’s decision. Wholesale used EV prices fell for most of 2023, and the influx of nearly 20,000 former Hertz EVs will further drive down used electric car prices. For example, some former Hertz Tesla Model 3s are now selling for around $20,000, less than half of the base price for a new Model 3.
Hertz Taking $245 Million Loss on EV Fleet Liquidation
Hertz expects to take a $245 million loss in Q4 2023 related to depreciation expenses from selling off its EV fleet. This demonstrates just how rapidly these vehicles are losing value for rental companies. EV technology is still advancing rapidly, so newer models quickly make preceding generations less valuable.
The declining used EV market, along with rising costs to repair collision damage, made Hertz’s electric fleet financially unsustainable. It remains to be seen whether other rental car providers will follow Hertz’s lead and shift away from EVs in the short term.
Industry Experts Say Hertz News Signals Need to Reset EV Expectations
Hertz’s surprising decision is prompting automotive industry experts to recommend resetting expectations around EV adoption. The shift away from electrification by such a major rental car provider indicates persistent hurdles.
According to Morgan Stanley analyst Adam Jonas, there are “hidden costs to EV ownership” beyond just powering the vehicles. These include higher insurance premiums, maintenance costs, and resale value loss. While consumers may save on fuel, the total cost of ownership for EVs can be higher than expected.
For now, Hertz will focus on improving profitability from its remaining EVs, including models from Polestar. But this latest move signals that the transition to electric mobility will be bumpy, even with bullish projections for consumer EV sales. It remains to be seen how smaller rental companies will adapt as the used EV market gets flooded with Hertz’s former fleet vehicles.
Rental Firms’ EV Woes Reflect Broader Industry Challenges
Hertz and Sixt, another rental car firm, have both cited rising expenses as a key factor in scaling back electric vehicles. This mirrors the situation across the auto industry.
Both Ford and GM have dialed back EV production plans in light of softened demand as tax incentives wane and used EV prices decline. Inventory backlogs have automakers hesitant to go all-in on electrification when gas-powered vehicles are still reliable profit generators.
Tesla itself reduced prices globally to spur lagging EV demand. And Tesla’s used prices have suffered the most, with EV startups like Rivian also slashing prices to compete with legacy automakers.
Until used EV prices stabilize and charging infrastructure improves, electric fleets make less financial sense for high-mileage drivers like rental companies. Hertz’s case shows the EV transition still faces critical tests even with strong consumer appetite for greener cars.
Hertz’s move away from electrification is a warning sign for the auto industry. But it’s unlikely to reverse the inevitable shift towards EVs as battery costs fall, charging networks grow, and more affordable models hit the market. For now, consumers are far more bullish on EVs than the major corporations expected to drive adoption.
