Hertz is reevaluating its decision to move a significant portion of its rental car fleet to electric vehicles. While it’s too early to know what the eventual result of this experiment will be, there’s no question that the short-term return from the program isn’t what they were expecting.
Shortly after emerging from bankruptcy in 2021, Hertz announced they would purchase 100,000 electric vehicles. As per recent filings, 10% of Hertz’s 500,000 vehicle fleet are electric vehicles; they’re either Teslas or from other manufacturers like Polestar and GM. Hertz had stated its plan to have 25% of its fleet be EVs by the end of 2024.
But the EV program at Hertz hasn’t gone as planned. Hertz CEO Stephen Scherr, who inherited the bold EV initiative when he joined the company in 2022, said in a recent earnings call that “our in-fleeting of EVs will be slower than our prior expectations.”
What happened?
Once Hertz’s plan of buying EVs for the fleet reached a critical mass, there was a big problem. Most car rental customers did not want to rent an electric vehicle. Unless they already drove one, people didn’t want a learning curve about how to drive and charge their car while on vacation or a work assignment.
In addition, Hertz kept changing the rules about returning an electric vehicle. At first, there was no charging fee as long as the car had at least a 10% charge left. However, now you’re expected to return the vehicle with the charge at which you received it, or be required to pay a recharging fee. Notice that they’re not requiring themselves to give you an EV with a full (or almost full) charge.
While Hertz might have predicted a consumer reluctance to rent an electric vehicle, the program’s other problems are more complex and have nothing to do with renting Teslas.
Repair, Resale & Rideshare
Hertz’s electric vehicle problem can be summed up in these three words. The three topics all blend together, and this video from CNBC does an excellent job of showing how Hertz ended up where they are now:
What’s going to happen?
This is the big question. Hertz investors seem to be split on what should be done. The company has already invested a large amount of money in buying electric vehicles, building out a charging infrastructure, and promoting the rental of EVs to both corporate and leisure customers.
Moreover, electric vehicles aren’t going anywhere. They represented 10% of new car sales in 2022, which is only expected to increase, meaning more people will drive an EV and feel more comfortable renting them. However, Hertz’s mistake was assuming that customers would treat EV and gas vehicles interchangeably.
Finally, Hertz put itself in a bind by tying the EV program so closely to one company, Tesla. This is because Tesla controls the price of vehicles, which also impacts the value of used vehicles when Hertz needs to sell them.
Hertz is working to resolve these issues by partnering with other EV producers like GM and Polestar, which should help reduce dependence on Tesla for repairs and resales.
Final Thought
Hertz made a bold move by heavily investing in electric vehicles for the rental market. However, it may have been too early to go all-in on EVs.
The company is now realizing its mistakes and is taking steps to rectify them. Unfortunately, challenges such as a lack of charging stations, expensive repairs, and customers’ unfamiliarity with the product are beyond their control.
Whether this early adoption will prove to be a wise decision or a costly mistake for Hertz remains to be seen.
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