Home Tech Shocking Twist: Hertz Ditches One-Third of Electric Fleet as Tesla Price Cuts Spark Debate on EV Viability

Shocking Twist: Hertz Ditches One-Third of Electric Fleet as Tesla Price Cuts Spark Debate on EV Viability

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Shocking Twist: Hertz Ditches One-Third of Electric Fleet as Tesla Price Cuts Spark Debate on EV Viability

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In a surprising move, Hertz, the renowned rental car company, is parting ways with approximately one-third of its electric vehicle (EV) fleet due to rapid depreciation and unexpected challenges. This strategic decision, revealed on Thursday, has dealt a blow to Hertz’s ambitious plans to transition to a cleaner, emissions-free fleet. The company cites a combination of plummeting resale values, increased collision rates, and high repair costs as contributing factors to this significant shift.

Stephen Scherr, Hertz’s Chief Executive, acknowledged in an interview that certain EVs in their possession became economically unsustainable. The plan now is to sell 20,000 battery-powered cars and replace them with gasoline-powered vehicles. This decision, Mr. Scherr claims, is partially a response to “unprecedented” price reductions by Tesla, the leading electric car manufacturer, which negatively impacted the resale value of Hertz’s EVs.

The unexpected move by Hertz has become a talking point in discussions surrounding the Biden administration’s push for EV adoption as a crucial step in combating climate change and air pollution. Republican Senator John Barrasso, during a Senate Committee hearing on climate policies, seized upon Hertz’s decision as evidence that EVs are both expensive and unpopular. He asserted, “The demand for electric cars is stagnating,” casting doubt on the success of the Biden administration’s environmental initiatives.

Hertz’s CEO pointedly directed blame towards Tesla for the company’s predicament, emphasizing the adverse effects of Tesla’s substantial price cuts on the resale value of Hertz’s EVs. Tesla, responsible for half of Hertz’s electric fleet, experienced a significant drop in value after the company, headed by Elon Musk, implemented a 30 percent price reduction last year.

The rapid depreciation of Tesla vehicles forced Hertz to accelerate the write-down of their EVs’ value, impacting the company’s profits. Rental companies, including Hertz, estimate the future value of their cars and factor this estimated depreciation into their costs. When the actual depreciation exceeds expectations, it adversely affects profitability.

Furthermore, Mr. Scherr revealed that Tesla was less willing to provide Hertz with volume discounts on replacement parts compared to other automakers. He suggested that Tesla’s relative newness to the rental car market influenced this decision, highlighting the company’s inexperience in catering to the unique needs of rental fleets. Despite attempts to obtain a comment from Tesla, the company remained silent on the matter.

This move by Hertz represents a temporary setback for the company, which had initially announced plans to purchase 100,000 Teslas in 2021 as part of a broader initiative to electrify its rental fleet. However, the lack of a specific deadline for the purchase agreement allowed Hertz to delay and ultimately reduce its commitment to a fraction of the originally intended number. Hertz also offers electric vehicles from other manufacturers, including Kia, General Motors, Volkswagen, and Polestar.

One plausible reason for the higher collision rates of Hertz’s EVs, as suggested by Mr. Scherr, is the lack of experience among renters with electric vehicle technology. Despite Hertz’s efforts to educate customers, the quick acceleration and increased weight of electric cars contributed to more accidents. Additionally, demand for these vehicles fell short of the company’s expectations.

While Hertz’s decision may strengthen the arguments of some conservatives, including former President Donald J. Trump, who assert that EVs have been overhyped, industry experts like Jeremy Robb, Senior Director of Economic and Industry Insights at Cox Automotive, emphasize that the EV market is still thriving. Robb pointed out that electric vehicle sales in the United States reached nearly 1.2 million last year, with a 40 percent increase in the last quarter of 2023 compared to the same period in 2022.

Despite the setback, Hertz remains committed to its electrification goals and intends to purchase more Teslas in the future. Mr. Scherr acknowledges that the market needs further development, stating, “Tesla is among the best-selling cars in America, but it’s not yet the best rental car.” He added optimistically, “Those two have not converged as quickly as many people, including ourselves, thought. But they will.”

In conclusion, Hertz’s bold decision to part ways with a significant portion of its electric vehicle fleet serves as a notable development in the ongoing debate surrounding the feasibility of widespread electric vehicle adoption. The challenges faced by Hertz, including accelerated depreciation, increased collision rates, and unexpected repair costs, underscore the complexities and nuances involved in transitioning to an electric vehicle-dominant fleet. While opponents, exemplified by Senator John Barrasso, leverage Hertz’s move to cast doubt on the broader appeal and affordability of electric cars, industry experts maintain that the electric vehicle market is still vibrant and growing. Hertz’s CEO, Stephen Scherr, points fingers at Tesla’s pricing strategy and relative inexperience in dealing with rental car companies, shedding light on the intricate relationships within the automotive industry. Despite this setback, Hertz remains committed to its electrification goals, signaling a temporary divergence rather than a complete abandonment of the electric vehicle trajectory. The episode also highlights the need for ongoing market development and education to bridge the gap between electric vehicles being among the best-selling cars in America and their optimization as ideal choices for rental fleets, echoing Mr. Scherr’s optimistic assertion that convergence is on the horizon.

In Shorts

  1. Hertz announces the sale of one-third of its electric vehicle (EV) fleet due to accelerated depreciation and unforeseen challenges.
  2. Tesla’s substantial price cuts are cited as a major factor in the rapid decline of resale value for Hertz’s EVs.
  3. Senator John Barrasso seizes on Hertz’s decision to question the viability and popularity of electric cars, challenging Biden administration policies.
  4. Hertz CEO, Stephen Scherr, points to Tesla’s reluctance to provide volume discounts on replacement parts, attributing it to the company’s relative inexperience in serving rental car fleets.
  5. The absence of a specific deadline in Hertz’s agreement allows for a temporary reversal in the company’s plan to purchase 100,000 Teslas for its fleet.
  6. Higher collision rates among Hertz’s EVs are attributed to renter inexperience with electric vehicle technology, despite the company’s educational efforts.
  7. Industry expert Jeremy Robb highlights the continued growth of the electric vehicle market, with sales reaching nearly 1.2 million in the United States last year.
  8. Hertz maintains its commitment to electrification goals, signaling the setback as a temporary deviation rather than a complete departure from EV adoption.
  9. The incident prompts renewed discussions on the challenges and opportunities in the electric vehicle sector, emphasizing the need for ongoing market development.
  10. Despite the divergence, Scherr expresses optimism, predicting eventual convergence between electric vehicles being among the best-selling cars and their suitability for rental fleets in the future.

 

 

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