Hertz is running into unexpected challenges as it looks to electrify more of its rental fleet.
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Hertz is slowing down plans to include more electric cars in its fleet. The firm said EVs have higher repair costs and have depreciated significantly. Hertz said it would buy 100,000 Teslas in 2021.
Embracing electric cars is proving much more complicated than Hertz anticipated.
The car-rental giant is hitting the brakes on a wide-ranging plan to integrate more electric vehicles into its fleet as it runs into challenges like high repair costs and depreciation. Hertz isn’t giving up on EVs entirely, but it’s starting to take a more measured approach.
“Our in-fleeting of EVs will be slower than our prior expectations,” Hertz CEO Stephen Scherr said during the company’s third-quarter earnings call on Thursday. “We know the challenges at hand and are working to remedy that, which we can.”
Hertz had initially aimed to make 25% of its fleet electric by the end of 2024. Now it’s dropping that goal. Today, 11% of Hertz’s cars are electric, and 80% of those are Teslas.
In 2021, Hertz started going all-in on EVs, announcing a plan to buy 100,000 Teslas as part of an effort to give customers electric options. It has also inked deals with General Motors (to buy 175,000 vehicles), the EV brand Polestar (to buy 65,000 vehicles), and Uber (to make EVs available to drivers). But things haven’t been easy.
Rideshare drivers have been damaging Hertz’s EVs at a higher rate than it anticipated, prompting the company to shift more EVs into its regular rental fleet. That led to an oversupply that dragged down the vehicles’ revenue per day over the quarter, Scherr said.
Moreover, Hertz said it’s found that repairing damage to an electric car can cost around twice as much as fixing similar issues on a comparable combustion-engine vehicle. Routine maintenance, however, costs less, it said. (EVs don’t need oil changes and are generally simpler to maintain than combustion vehicles.)
Tesla’s barrage of price cuts over the last year hasn’t done Hertz any favors either. Remember, when Hertz made its Tesla announcement, Elon Musk chimed in to say that he wasn’t going to offer a bulk discount.
“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.
Add it all up, and Hertz’s third-quarter profits would have been “several margin points higher” if its fleet was similarly sized but didn’t include EVs, Scherr said. “We nonetheless remain committed to our long-term strategy to electrify the fleet,” he added.
Hertz isn’t the only company slowing its roll on EVs. After years of exponential sales growth and seemingly limitless demand, the electric-car industry has hit a rough patch.
This year, electric cars have been languishing on dealer lots, forcing automakers to cut prices and lather on other incentives. High interest rates have put already-expensive electric models even farther out of reach. Manufacturers including Ford and General Motors — once extremely bullish on the electric future — have said they are reining in spending on EVs and will grow EV production at a slower pace.
Do you work for a rental-car company with EVs in the fleet? Have you rented an EV recently? We want to hear from you! Contact this reporter at tlevin@insider.com