Fiasco Descending Into Farce: Hertz Unloads 20,000 EVs and will Purchase More Gas-Powered Cars
How can the general public be expected to manage EV ownership if Hertz, a 100-year-old global corporation that specializes in transportation, cannot?
Image: Zuma Press
The car rental business is designed largely for the transient driver, someone who lives elsewhere and needs personal transportation for a limited time in an unfamiliar area. Rental companies build their reputations on making the rental process friction free, gaining repeat business through having the right car available and making sure the experience is more or less free from drama.
What the rental customer wants is convenience, predictability, and a fair price. The last thing a businessman or vacationer wants is having to deal with the difficulties and hassles unique to EVs, such as searching for charging stations, waiting 30 minutes for a “fast” charge, and keeping the EV plugged in overnight at a hotel.
Given this reality, it is a wonder why a car rental company would force its customers into cars that require the driver to plan around charging station availability, plus incur the worry of “range anxiety” if the EV battery drains more quickly than expected. Rental companies are finding out that EVs might be great to own but are pretty lousy to rent.
Hertz Buys Into The Electric Vehicle Panacea
It was only in October of 2021 that Hertz made headlines by announcing that it had placed an order of 100,000 vehicles from Tesla, a move that pushed Tesla to a market valuation of $1 trillion (it has since then settled to just under $750 billion as of this writing). Hertz had initially set a goal of EVs becoming 25 percent of its fleet, but low demand for rental EVs coupled with higher repair costs and ongoing price cuts from Tesla rapidly soured everyone on the idea. The realities of the “transition” to EVs proved to be much more costly and unpopular with the market than Hertz expected.
Hertz is now pulling back on its “transition” to EVs and is planning to sell off 20,000 of its EV fleet due to weak demand and high maintenance costs. The proceeds from the sale of EVs will be reinvested into vehicles with internal combustion engines (ICE). You know, the gas-powered ones that most rental customers actually want to drive.
Hertz also reported it would post an expense of $245 million in net depreciation related to the sale. Not long ago, that type of disastrous mismanagement would have caused heads to roll but being a “first mover” in the EV rental market will give Hertz’s executives a temporary pass and a bit more time to make things right.
EVs: More Expensive yet Less Profitable
In justifying its turnaround strategy on EVs, Hertz is acknowledging the difficulties and costs of maintaining a fleet of EVs compared to ICE vehicles. The company reported that collision repairs to EVs “can often run about twice that of a comparable (ICE) vehicle.” Hertz reported that their profit for the latest quarter “would have been several margin points higher” if their fleet had been comprised solely of ICE vehicles. This admission is not surprising; EVs have much higher repair and parts costs, as well as much higher value depreciation than ICE vehicles. Hertz is experiencing all of these problems at once across its entire EV fleet.
On a global scale, EVs account for around 60,000 of Hertz’s total vehicle fleet. Dumping one-third of them so quickly after only a couple of years in service presents a huge question: If an international corporation that specializes in global car rentals, vehicle maintenance, and complex fleet management, can’t find a way to make EVs practical and affordable, how can anyone expect the average consumer to do so?
While Hertz insists that this elimination of EVs from their fleet does not signify their exit from offering EVs for rent, my suspicion is that Hertz would have preferred to offload all of their EVs but were in no financial or contractual position to do it at this time. I say this because Hertz’s executives must know by now that their problems unique to all EVs have no solution – they will remain and will get worse. Batteries will wear out, charging infrastructure will remain sparse in most of the country, repair costs will continue to climb, and residual value will drop. The sinkhole of losses incurred by Hertz and the dissatisfaction of their customers will eventually need to be addressed.
The Customer Experience of EV Rentals
There are plenty of EV car rental stories, and very few of them are positive. The difficulties of finding a working public charging station are well known, and when enough vacations are ruined and important meetings missed due to lack of charging infrastructure, travelers will never waste their time again on EVs and dealing with issues they didn’t have when they rented gas-powered cars.
Will losing around 50 percent of its stock value since July 2023 be enough to motivate Hertz shareholders to demand a return to a profitable business model that excludes EVs? It’s hard to say since the company has agreements in place to buy over 300,000 EVs in total from GM and Polestar as well as Tesla, plus they have a partnership with Uber to rent EVs from the Hertz fleet to ride-share drivers. “We believe adoption will continue to take hold,” says a Hertz spokesperson.
That adoption might happen eventually, but it is happening at a much slower pace than automakers anticipated. GM and Ford have already scaled back EV production, and inventories of new EVs are still quite high at car dealerships, causing further discounting. It’s not working out very well.
Used and Abused EVs
And what becomes of those 20,000 Tesla rentals hitting the used car market? Some Model 3’s are being offered by Hertz Car Sales for as low as $20,125 – roughly half of what Hertz paid for them as new. That particular Model 3 has over 92,000 miles on it. Buyer beware!
Overall, around a million EVs are coming off their leasing contracts in 2024, exacerbating the entirely predictable circumstance of too many used EVs and not enough buyers. With used Teslas now being dumped on the market, the value of used EVs will drop even further as they pile up in weed-infested lots for lack of any meaningful market demand due to no EV charging infrastructure, no subsidy from the state, and the eventual problem of replacing the battery around the 100,000 mile mark at a cost of at least $10,000 if it’s not covered under warranty. These three factors alone are enough to guarantee that “pre-owned” EVs – and particularly those that were rented, with evidence of abuse that all rentals have – have very little attraction to clear-thinking consumers.
Where does all of this leave Hertz? It’s likely going to result in the company taking a huge bath on those EVs it bought (and the ones Hertz is still buying if the purchase agreements with automakers cannot be canceled). There is nothing in the immediate future that indicates any financial relief in Hertz’s EV business, no matter what happy talk emanates from their spokespeople.
The era of the rental EV might soon be unplugged.