Hertz to Sell 20,000 Electric Vehicles
HTZ 
Hertz Global Holdings has announced a significant decision to sell around 20,000 electric vehicles (EVs) from its U.S. fleet, constituting approximately a third of its total number of EVs in its global fleet. The move is a strategic response to the higher expenses related to collision and damage associated with EVs, which has prompted the company to opt for gas-powered vehicles instead. The decision reflects the challenges faced by the EV industry as sales growth slows and used-EV prices drop.
The company is expected to recognize about $245 million of incremental depreciation expenses from the proposed sale in the fourth quarter of 2023. This substantial non-cash charge will be a part of the fourth-quarter results. The sale of EVs began last month and is set to continue throughout 2024. The funds from selling the EVs will be allocated towards purchasing more internal combustion engine vehicles. Hertz aims to better balance supply against expected demand of EVs, eliminate lower-margin rentals, and reduce damage expense associated with EVs.
The decision to reduce the EV fleet is primarily driven by the high expenses related to collision and damage associated with EVs. CEO Stephen Scherr flagged headwinds from higher expenses for EVs, particularly Teslas, at the JPMorgan Auto Conference. Hertz had previously committed to purchasing 65,000 EVs from Polestar and ordered 100,000 Tesla vehicles by the end of 2022. However, the company now plans to reinvest some of the proceeds from the EV sales into purchasing gas-powered vehicles to better balance supply against expected demand of EVs. The reversal in the strategy marks a shift away from the focus on EVs, which were expected to fetch higher prices and hold their value, but were negatively impacted by Tesla’s price cuts.
Morgan Stanley analyst Adam Jonas commented on the need to “reset downward” EV expectations based on Hertz’s move, reflecting the broader impact of the decision on the industry. The company expects incremental free cash flow of as much as $300 million in the aggregate over 2024 and 2025. Other rental car companies, like Sixt, have also made adjustments to their EV fleets, indicating a broader trend in the industry. German rental car company Sixt said it has not purchased Tesla vehicles since 2022 and is selling its fleet of Teslas as part of its regular de-fleeting process.
Hertz’s Strategy and Initiatives for Remaining EV Fleet
Hertz is actively managing the size and allocation of its EV fleet across customer segments, including leisure, corporate, government, and rideshare. The company expects to improve the profitability of the remaining EV fleet through a series of initiatives, including the expansion of EV charging infrastructure, growing relationships with EV manufacturers, particularly related to more affordable access to parts and labor, and continued implementation of policies and educational tools to help enhance the EV experience for customers. The company continues to implement these initiatives to enhance the profitability of the remaining EV fleet.
The sale of EVs is expected to take place in an orderly fashion during 2024, with the process already initiated in late last year. Various older model Teslas and EVs from other automakers are available for purchase from Hertz. Hertz had previously announced plans to invest in acquiring 100,000 Teslas to build its EV fleet. The company is keen on GM’s plan to sell cheaper EVs, particularly the Chevy Bolt and Chevy Equinox, which could be easier to rent profitably.
Hertz plans to keep a close eye on EV demand to decide if the company should buy more vehicles, potentially impacting agreements with GM and Polestar. The company aims to balance supply against expected demand of EVs, eliminating lower-margin rentals, and reducing damage expense associated with EVs. The company expects this action to better balance supply against expected demand of EVs.
Challenges and Industry Impact of Hertz’s Decision
The decision by Hertz to sell around 20,000 electric vehicles from its U.S. fleet reflects the challenges faced by the EV industry as sales growth slows and used-EV prices drop. The company’s move to reduce the EV fleet and reinvest in gas-powered vehicles is a significant indicator of the waning demand for all-electric cars in the US. The dramatic change in strategy marks a reversal of a previous focus on EVs, as Tesla’s price cuts lowered the value of the cars in Hertz’s fleet.
The decision has broader implications for the industry, with Morgan Stanley analyst Adam Jonas commenting on the need to “reset downward” EV expectations based on Hertz’s move. The challenges faced by Hertz are reflective of a broader trend in the industry, as other rental car companies, like Sixt, have also made adjustments to their EV fleets. German rental car company Sixt said it has not purchased Tesla vehicles since 2022 and is selling its fleet of Teslas as part of its regular de-fleeting process. Wholesale used-EV prices fell for most of 2023 as prices for new EVs fell and inventories of unsold electric vehicles rose, according to Cox Automotive data.