After various legacy automakers announced plans to scale back their previously ambitious electrification plans, car-rental giant Hertz has revealed that it is also selling off a portion of its EV fleet. The Florida-based car-rental company has revealed that it will sell one-third of the electric cars in its EV fleet (around 20,000 battery electric cars) and invest funds in internal combustion engine (ICE) cars.
Even though electric cars theoretically cost less to maintain compared to fossil-fuel-powered cars, Hertz executives noted in a recent executive call that EVs have been harming the company’s bottom lines. This is primarily because electric cars have higher repair costs and depreciate faster than other types of vehicles.
Company CEO Stephen Scherr said that repairing damaged electric cars can cost up to twice as much as the cost of repairing similar gas-powered vehicles. Furthermore, declining vehicle prices in the new electric vehicle market have reduced the resale value of the used cars in Hertz’s electric car fleet.
Increasing competition in China, currently the largest electric-vehicle market in the world, has forced major automakers such as Tesla to cut prices in a bid to remain competitive. The influx of cheap Chinese electric cars into foreign markets has also forced Western automakers to offer their EVs at lower prices. With overall demand for electric cars in major markets such as the United States declining, prices for used electric cars have plummeted.
For Hertz, a fleet company with tens of thousands of electric cars, high repair costs coupled with declining resale costs likely made electric cars seem like an increasingly bad investment. According to Scherr, Tesla-driven price declines last year reduced the resale value of Hertz EVs to below 2023 levels and lowered the company’s chances of salvaging its EV investment.
A Hertz SEC filing revealed that the company expects to lose around $245 million due to electric vehicle depreciation at around $12,250 per EV.
Unsurprisingly, electric vehicle giant Tesla supplied the majority (80%) of the vehicles in Hertz’s electric vehicle fleet. Although Hertz didn’t point fingers in its statement, it is clear that Tesla is largely responsible for Hertz’s decision to offload a third of its electric vehicles.
Facing increasing pressure from local companies such as BYD in the Chinese market, Tesla has engaged in several aggressive price cuts and essentially lowered the value of the used-EV industry. Hertz executives also noted that repairing damaged Teslas is costly and time consuming because Tesla doesn’t have a lot of trained car repair technicians or replacement parts as do other established automakers.
Hertz’s sell-off does not bode well for the electric vehicle industry and could lead to other car rental companies offloading their electric vehicles and turning back to internal combustion engine cars.
Fleet operators have always been seen as key to helping to deepen the uptake of electric vehicles in major markets around the world. Hertz’s decision to downsize its EV fleet sends manufacturers such as NIO Inc. (NYSE: NIO) back to the drawing board to come up with strategies to counter the setback that the step announced by Hertz presents.
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