Electric Vehicles: Hertz Reverses

Writing here in June last year, I quoted from an Atlantic article by Saahil Desai. He had reserved a car from Hertz, only to be told at the rental counter that all they had was an electric vehicle (EV). Given no choice, he accepted. What happened next did not sound like fun.

Desai noted that 25 percent of the Hertz fleet was meant to be electric by the end of 2024.

He was told by the president of the American Car Rental Association that EVs appeal to car-rental companies because they are far easier to maintain (fewer moveable parts) and “seem to hold their value.”

I was surprised by this and wrote:

The first is true, although EVs appear to be more expensive and time-consuming to repair, something that may change as more of them enter circulation and an improved repair infrastructure evolves. I was, however, surprised to read that EVs hold their value better. With a product moving up sharp innovation curve, that seems counterintuitive, and, indeed, the picture appears to be somewhat mixed.

To be clear, Desai supports EVs in principle (“great, potentially planet-saving machines”), but the surprise EV rental experience had made him “want to wage a slash-and-burn campaign against all of them.”

I returned to this topic in October, quoting from this story from Bloomberg. Here’s an extract (my emphasis added):

Hertz Global Holdings Inc. earnings missed estimates amid headwinds from Tesla Inc. price cuts and the high price of repairs for electric vehicles.

Tesla has been rapidly dropping its prices to spur sales, which has lowered the resale value of the EVs in Hertz’s fleet by about one-third. Repair costs for EVs have also been higher than expected, about double what the company pays to fix damaged gasoline cars, Chief Executive Officer Stephen Scherr said in an interview Thursday.

Hertz will slow the pace of buying EVs while it learns how to manage costs, Scherr said. Hertz has 50,000 EVs currently, of which 35,000 are Tesla models. EVs account for about 11% of its total fleet.

Scherr said Hertz remains committed to buying 100,000 cars from Tesla and 175,000 EVs from General Motors Co., but the rental company won’t meet its goal to have EVs account for 25% of the fleet by the end of 2024, he said. The first order of business is to work with parts suppliers to lower repair costs. As EV prices settle, Hertz will buy more of them, he said.

Now there’s this from Javier Blas at Bloomberg today:

Hertz Global Holdings Inc. plans to sell a third of its US electric vehicle fleet and reinvest in gas-powered cars due to weak demand and high repair costs for its battery-powered options.

The sales of 20,000 EVs began last month and will continue over the course of 2024, the rental giant said Thursday in a regulatory filing. . . .

The dramatic about-face, after Hertz announced plans in 2021 to buy 100,000 Tesla Inc. vehicles, underscores the waning demand for all-electric cars in the US. EV sales growth slowed sharply over the course of 2023, rising just 1.3% in the final quarter as consumers were put off by high costs and interest rates.

I don’t think that consumers were only put off by those factors. EVs are not yet ready for the mass market for a number of reasons, among them, to be sure, price, but also convenience and (Tesla is something of an exception to this) the lack of adequate charging networks.

It may be that this is having a knock-on effect. Fewer drivers are buying EVs than expected, and people who have never driven an EV before might be unwilling to rent one.

For a less, well, pedestrian, counterview, I suppose, there is the approach set out many years ago by P. J. O’Rourke:

There’s a lot of debate on this subject—about what kind of car handles best. Some say a front-engined car, some say a rear-engined car. I say a rented car. Nothing handles better than a rented car. You can go faster, turn corners sharper, and put the transmission into reverse while going forward at a higher rate of speed in a rented car than in any other kind. You can also park without looking, and can use the trunk as an ice chest. Another thing about a rented car is that it’s an all-terrain vehicle. Mud, snow, water, woods—you can take a rented car anywhere. True, you can’t always get it back—but that’s not your problem, is it?

Blas:

Hertz plans to use some of the money raised by selling off EVs to buy gas-powered vehicles. “The company expects this action to better balance supply against expected demand of EVs,” it said in the filing.

The shift back to more conventional cars marks a reversal of a strategy centered on EVs, which the company hoped would fetch higher prices at the counter and hold their value. Tesla’s price cuts over the past year lowered the value of the cars in Hertz’s fleet and with EV sales growth slowing, it’s not clear if consumers will have an appetite for them in the used-car market. . . .

Hertz is keen on GM’s plan to sell cheaper EVs, like a future redesign of the Chevolet Bolt, which sold for under $30,000 before ending production last year, and a $35,000 Chevy Equinox that is going into production. Those vehicles could be easier to rent profitably, Scherr said.

“We’re committed to the strategy” Scherr said. “It will take more time to execute it.”

I will continue to be wary of Hertz.