Hertz makes ‘agile’ decision to shift strategy and sell EVs, Teslas

Hertz
surprised
many
onlookers
last
week
when
the
car-rental
company
announced
it
would
be
selling
about
a
third
of
its
global
electric
vehicle
fleet,
reversing
course
on

several
big
bets
it
had
placed
on
EVs.

The
move
seemingly
followed
the
rest
of
the
auto
industry,
which
has
quickly
shifted
its
position
on
EVs
after
years
of
aggressive
plans
and
projections,
with
several
automakers
cutting
production
of
vehicles
or
reducing
prices
as
inventory
has
built
up
in
recent
months.

In
October,


General
Motors
and


Honda
Motor
announced
that
they
were

canceling
plans
to
jointly
develop
affordable
EVs
in
the
face
of
slowing
demand.
Over
the
course
of
2023,


Tesla

cut
the
prices
of
its
cars
across
the
world,
aiming
to
reignite
demand
as
consumer
spending
slowed
and
the
EV
market
became
even
more
crowded.

Hertz
CEO
Stephen
Scherr
told
CNBC’s
Jim
Cramer
on
“Squawk
on
the
Street”
on
Thursday
that
the
company’s
move,
which
followed
large
purchase
orders
of
Tesla
and
GM
EVs,
was
“responding
to
the
reality,
which
is
we’re
trying
to
bring
supply
in
line
with
demand.”

“The
reality
of
EVs
and
Tesla’s
being
the
best-selling
car
will,
at
some
point,
render
them
the
best
rental
car,”
Scherr
said.
“It’s
not
yet,
so
we
may
have
been
ahead
of
ourselves
in
the
context
of
how
quickly
that
will
happen,
but
that
will
happen.”

Hertz
said
it
would
be
selling
about
20,000
electric
vehicles.
It
would
then
use
some
of
those
proceeds
to
buy
internal
combustion
engine
cars.
The
company
would
also
be
taking
a
$245
million
incremental
net
depreciation
expense
as
a
result.

However,
Hertz
said
in
a
regulatory
filing
that
it
expects
to
improve
its
bottom
line
by
an
amount
equal
to
$245
million
over
the
next
two
years
by
replacing
those
EVs
with
internal-combustion-engine
cars.

The
company
had
already
indicated
on
its
third-quarter
earnings
call
in
October
that
it
was

slowing
its
purchase
of
EVs,
citing
MSRP
declines
in
EVs
driving
down
the
fair
market
value
of
its
cars.
The
company
said
about
11%
of
its
entire
fleet
in
October
was
EVs.

On
Oct.
25,
2021,
Hertz
first
announced
plans
to
grow
its
fleet
of
battery-electric
vehicles
with
“an
initial
order
of
100,000
Teslas
by
the
end
of
2022.”

A
commercial
featuring
repeat
Super
Bowl
champion
Tom
Brady,
alongside
parked
Tesla
Model
3
electric
sedans
in
a Hertz garage,
accompanied
the
announcement.

Wedbush
analyst
Dan
Ives

said
on
CNBC’s
“Last
Call”
on
Thursday
that
the
move
to
sell
part
of
its
Tesla
fleet
is
a
“black
eye
for
Hertz,”
adding
that
he
believes
Hertz
miscalculated
how
its
move
to
introduce
EVs
and
Teslas
to
customers
would
play
out
from
a
marketing
and
roll-out
standpoint.

Part
of
Hertz’s
original
thesis
into
investing
in
EVs
is
that
customers
would
be
eager
to
rent
them
for
a
variety
of
reasons,
such
as
trying
one
for
the
first
time,
avoiding
high
gas
prices
or
choosing
a
more
environmentally
friendly
rental
car.

Scherr
said
that
sort
of
experimentation
was
happening,
but
“not
happening
at
a
level
of
demand
that
justifies
us
maintaining
a
fleet
of
this
size
at
this
moment
in
time.”
Tesla’s
recent
decision
to
lower
the
price
of
its
vehicles
also
weighed
into
Hertz’s
decision
given
the
impact
on
deprecation,
Scherr
added.

Hertz
had
previously
set
a
goal
to
have
a
quarter
of
its
fleet
be
EVs
by
the
end
of
2024.
Scherr
said
taking
this
course
instead
was
about
financial
performance
and
operational
integrity.

“A
smart
company
is
one
that’s
agile,
makes
an
adjustment,
takes
away
the
distraction
—
financial
and
operational
—
and
moves
on,”
Scherr
said.