Hertz, which has made a big push into electric vehicles in recent years, has decided it's time to cut back. The company will sell off a third of its electric fleet, totaling roughly 20,000 vehicles, and use the money they bring to purchase more gasoline-powered vehicles.
Electric vehicles have been hurting Hertz's financials, executives have said, because, despite costing less to maintain, they have higher damage-repair costs and, also, higher depreciation.
"Collision and damage repairs on an EV can often run about twice that associated with a comparable combustion engine vehicle," Hertz CEO Stephen Scherr said in a recent analyst call.
And EV price declines in the new car market have pushed down the resale value of Hertz's used EV rental cars.
"The MSRP declines in EVs over the course of 2023, driven primarily by Tesla, have driven the fair market value of our EVs lower as compared to last year, such that a salvage creates a larger loss and, therefore, greater burden," Scherr said.
Simply put, people are generally willing to pay a certain amount less for a used car than for a new one. As the price of new cars goes down, that also pushes down what people are willing to pay to buy a used one.
Hertz expects to take a loss of about $245 million due to depreciation on the EVs, an average of about $12,250, per vehicle the company said in an SEC filing.
While Hertz isn't directly pointing a finger, it appears that Tesla has been largely to blame.
Tesla makes up about 80% of Hertz's EV fleet, and, altogether, EVs make up about 11% of Hertz's total rental fleet. Tesla has been aggressively cutting its vehicle prices leading other automakers to do the same for their electric vehicles. When automakers reduce the prices of new vehicles, that pushes down the value of those models in the used car market, causing rapid depreciation.
For rental car companies like Hertz, which sell lots of vehicles in the used car market, depreciation has a big impact on their business, and is a major factor when deciding which cars to have in their fleets.
Being a relatively new company, Tesla doesn't have as many replacement parts at hand and trained repair technicians that other car companies have, Hertz executives have said, making it costly and time-consuming to get repairs.
Remember, in the likes of GM and other [automakers], there's decades of establishment of a broad national parts supply network'" Hertz CEO Stephen Scherr said in a recent analyst call. "There's an aftermarket of parts that is there, that is less mature, obviously, in the context of Tesla."
Besides costing more to repair when they're damaged in a crash, Scherr also said, EVs are also getting in more crashes. Again, Teslas, which make up 80% of Hertz's EV rental fleet, are mostly the problem in both these areas, he has said.
"Our work with Tesla is to look at the performance of the car, so as to lower the risk of incidence of damage," he said, "and we're in very direct engagement with them on parts procurement and labor and the like."
Hertz sells its used vehicles at auctions as well as directly to customers on its Hertz Car Sales website.
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