Otis Singleton
Electric vehicles (EVs) have become increasingly popular in recent years, with many companies making the switch to electrify their fleets. However, in a surprising move, car rental giant Hertz has decided to sell about 20,000 EVs, including Teslas, from its US fleet. This decision comes just two years after the company's deal with Tesla to offer its vehicles for rent. Hertz's shift back to gas-powered cars is attributed to weak demand and high repair costs associated with EVs. The company aims to improve its profitability by reinvesting the proceeds from EV sales into internal combustion engine cars. This strategic shift has sparked mixed reactions, with some praising Hertz's agility while others view it as a setback for the EV industry.
| Characteristics | Values |
|---|---|
| Number of electric vehicles being sold | 20,000 |
| Percentage of electric fleet being sold | 1/3 |
| Electric vehicle brands being sold | Tesla, GM, Volvo, Polestar, BMW, Chevrolet, and more |
| Reason for selling | Weak demand, high repair costs, and depreciation |
| Sale channels | Auctions and Hertz Car Sales website |
| Benefits of buying a used electric vehicle | Eligible for a used clean vehicle tax credit, lower fueling costs, and minimal maintenance |
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What You'll Learn
Hertz sells 20,000 EVs
Hertz Global Holdings Inc. is selling about 20,000 electric vehicles (EVs) from its U.S. fleet, citing high expenses related to collision and damage repairs. The rental company will sell off roughly a third of its electric fleet, which includes Teslas, Volvos, and Polestars, and use the proceeds to buy internal combustion engine cars.
Hertz CEO Stephen Scherr said the decision was made to "bring supply in line with demand." While EVs cost less to maintain, they have higher damage-repair costs and higher depreciation, which has hurt the company's financials. Scherr noted that collision and damage repairs on an EV can often be twice as much as those for a comparable combustion engine vehicle.
The move by Hertz is seen as a blow to the EV industry, which is already facing slowing growth and high prices. Hertz's shift away from EVs also reflects the challenge of managing a large fleet of electric vehicles, particularly in terms of repair costs and the availability of replacement parts.
Hertz's decision to sell its EVs comes just over two years after the company announced plans to order 100,000 Tesla vehicles by the end of 2022. The rental firm had aimed to convert 25% of its fleet to electric by the end of 2024. However, the company now plans to reinvest in gas-powered cars, citing weak demand for EVs and the need to improve profitability.
Hertz's sale of 20,000 EVs will continue throughout 2024, and the company expects to improve its bottom line by $245 million over the next two years by replacing the EVs with internal-combustion-engine cars.
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High repair costs for EVs
Hertz Global Holdings is selling about 20,000 electric vehicles (EVs) from its U.S. fleet, predominantly Teslas, two years after a deal with the automaker to offer its vehicles for rent. The company will sell off a third of its electric fleet and use the money to purchase more gasoline-powered vehicles.
Hertz's decision to sell its EVs is due to higher expenses related to collision and damage repairs, which can often run about twice as much as those for a comparable combustion engine vehicle. In addition, EV price declines in the new car market have pushed down the resale value of the company's used EV rental cars.
While EVs generally cost less to maintain than gasoline-powered cars, they can be more expensive to repair. According to a study by Kelley Blue Book, EVs were 2.3 times more expensive to service than gasoline-powered cars during the first three months of ownership. At the 12-month mark, repair costs were about 1.6 times higher than those for gas-powered cars. This is partly because EV problems take longer to diagnose and repair, with technicians spending 1.5 times as many hours working on EVs as on gasoline-powered cars. The additional certifications required to service and work on EVs may also contribute to higher repair costs, as technicians with these certifications can charge higher rates.
However, as EVs become more common, the cost issue may fade. We Predict, an analytical firm, believes that EVs may prove less expensive to maintain and service in the long run. As EVs age, the cost of keeping them in service becomes smaller and less than that of keeping an internal combustion engine vehicle on the road, according to We Predict CEO James Davies.
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EVs' negative impact on Hertz's financials
In 2021, Hertz announced its plans to expand its fleet of electric vehicles with an initial order of 100,000 Teslas by the end of 2022. However, in January 2024, the company decided to sell about 20,000 electric vehicles, predominantly Teslas, from its US fleet. This decision was made due to the negative impact of EVs on Hertz's financials.
Firstly, EVs have higher expenses related to collision and damage repairs, which are nearly double those of comparable combustion engine vehicles. This is partly due to the limited availability of replacement parts and trained repair technicians for EVs, particularly for Tesla models. As a result, repair costs for Hertz's rideshare EVs, which make up a significant portion of their EV fleet, were much higher than expected.
Secondly, the resale value of Hertz's used EV rental cars has decreased due to the decline in prices for new EVs and the increasing inventory of unsold electric vehicles. This has led to rapid depreciation, impacting Hertz's business as they sell many vehicles in the used car market.
Additionally, the demand for EVs has cooled, with consumers opting for internal combustion engine cars. This shift in consumer demand has influenced Hertz's decision to sell a portion of its EV fleet and reinvest the proceeds into purchasing more gasoline-powered vehicles.
Hertz's decision to sell its EVs underscores the challenges faced by the EV industry, including the need to reset expectations and consider the hidden costs of EV ownership. While EVs offer a superior driving experience and fuel savings, the higher repair and maintenance costs have impacted Hertz's financials, leading them to reevaluate their strategy and reduce their initial ambitious EV fleet goals.
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Shift to gas-powered cars
Hertz Global Holdings Inc. has decided to sell about 20,000 electric vehicles (EVs) from its U.S. fleet, signalling a shift to gas-powered cars. This decision comes just two years after the rental company's deal with Tesla to offer its vehicles for rent. The shift to gas-powered cars is driven by several factors, primarily related to the challenges faced with EVs.
Firstly, EVs have higher expenses related to collision and damage repairs. Hertz CEO Stephen Scherr highlighted that "collision and damage repairs on an EV can often run about twice that associated with a comparable combustion engine vehicle." This is partly due to the limited availability of replacement parts and trained repair technicians for EVs, which can make the repair process costly and time-consuming.
Secondly, EVs have experienced significant price declines in the new car market, driven mainly by aggressive price cuts from Tesla. This has pushed down the resale value of used EVs, impacting rental car companies like Hertz that frequently sell vehicles in the used car market. The rapid depreciation of EVs further contributes to the financial burden.
Additionally, EVs come with higher depreciation costs. A study by iSeeCars found that electric cars had an average five-year depreciation rate of 49.1%, compared to the industry average of 38.8%. While Tesla's Model 3 has the best resale value among EVs, the increasing discounts offered by the company for new models could accelerate depreciation.
Hertz's decision to shift to gas-powered cars also reflects weak demand for EVs. Despite initial expectations that customers would be eager to rent EVs, the level of demand has not met their projections. This mismatch between supply and demand has influenced Hertz's strategy to realign its fleet composition.
By selling a portion of its EV fleet, Hertz aims to improve its profitability and address the financial challenges posed by EVs. The company plans to reinvest the proceeds from the EV sales into purchasing gas-powered vehicles, taking into account the higher demand and lower maintenance costs associated with these cars.
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EVs' hidden costs
In January 2024, Hertz announced it would sell about 20,000 electric vehicles (EVs) from its U.S. fleet, citing higher expenses related to collision and damage repair for EVs. This decision comes just two years after the rental car giant made a significant push into the EV market with large purchase orders of Tesla and GM EVs, including an initial order of 100,000 Teslas by the end of 2022.
While EVs may have lower maintenance costs, one of the hidden costs of EV ownership is the potentially higher expense of collision and damage repairs compared to traditional internal combustion engine (ICE) vehicles. According to Hertz CEO Stephen Scherr, repair costs for EVs can often be twice as much as those for comparable ICE vehicles. This is partly due to the limited availability of replacement parts and trained repair technicians for EVs, which can make repairs more costly and time-consuming.
Another hidden cost of EVs is the impact of new vehicle price declines on the resale value of used EVs. As automakers reduce the prices of new EVs, it pushes down the value of those models in the used car market, leading to rapid depreciation. For rental car companies like Hertz, which sell many vehicles in the used car market, depreciation can significantly affect their business and is a crucial factor when deciding which cars to include in their fleets.
Furthermore, EVs may have higher depreciation rates than ICE vehicles, which can result in a larger financial loss in the event of a total loss. As EV technology advances rapidly, the fair market value of older EVs can decrease more rapidly than ICE vehicles, leading to higher depreciation rates. This was evident in the used car market in 2023, where wholesale used-EV prices fell as new EV prices dropped and inventories of unsold electric vehicles rose.
Overall, while EVs may offer environmental and fuel cost benefits, there are hidden costs associated with EV ownership, such as higher repair expenses and greater depreciation rates, that can impact the overall cost of ownership for businesses and consumers.
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Frequently asked questions
Yes, Hertz is selling about 20,000 electric vehicles, including Teslas, from its U.S. fleet.
Hertz is selling its electric vehicles due to weak demand and high repair costs. The company will use the proceeds from the sales to buy internal combustion engine cars.
Hertz is selling some Tesla Model 3s for as low as \$20,000, nearly half the purchase price for the cheapest variant of the compact sedan.
