Global car rental giant Hertz has slowed down its big electric vehicle (EV) plans, with the company citing higher rates of damage to cars and Tesla’s cheaper price point affecting the cars’ value.
“The capabilities to manage an EV fleet are not learned overnight,” Hertz CEO Stephen Scherr told investors at the third quarter earnings update.
“Transitions of this magnitude are not easy, and there are important factors, including charging infrastructure, the pace of OEM [original equipment manufacturer] production and the growth of the EV aftermarket that we simply cannot control.
“Our in-fleeting of EVs will be slower than our prior expectations, but we will be stronger for having begun the journey when we did.”
TheDriven have regularly reported about Hertz’s move to an electrified market. In 2021, Hertz ordered 100,000 Teslas, while in 2022 Hertz announced a partnership with Polestar to buy up to 65,000 electric vehicles, and 175,000 EVs from GM.
This had been going well, with the company reporting cheaper costs to maintain the EVs, bigger profits, and a deal with Uber to supply EVs to drivers.
In April, Hertz announced that EVs made up 10 percent of the global fleet., and in the recent update, they have hit 11 percent.
However, there seems to now be some bumps on the road.
Despite cheaper costs to maintain, the rental cars being provided to Uber drivers ended up with much “higher incidents of damage” than expected.
“While conventional maintenance on electric vehicles remained lower relative to comparable ICE vehicles in Q3, higher collision and damage repairs on EVs continue to weigh on our results,” said Scherr.
“Collision and damage repairs on an EV can often run about twice that associated with a comparable combustion engine vehicle.”
To try and fix this, Hertz moved many of the EVs from the Uber market into the ‘leisure’ rental space, which oversaturated the market and lowered the ‘revenue per day’ or RPD of the EVs.
“We are working hard to re-underwrite to the drivers that we’re putting into these cars, particularly in our rideshare business,” he said.
“We’re looking for more experienced drivers, longer length of keep, where the incidence of damage goes down.”
The other issue is Tesla’s recent drop in value. About 80% of the EVs in Hertz fleet are Teslas. This will be helpful for buying new cars in the future but is currently an issue when the cars are being resold, or salvaged entirely if they’re too damaged to repair.
However, Hertz is still moving forward with EV plans, just slower than expected. Currently they have about 35,000 Teslas in their fleet – far below the 100,000 it suggested by the end of 2022, but Scherr has still “committed” to buying the GM and Tesla EVs that it originally ordered.
“We believe there is substantial upside opportunity to grow margins and cash flows as we work through the EV headwinds,” he concluded.
“We are pulling all controllable levers to bring the incremental cost down. We nonetheless remain committed to our long-term strategy to electrify the fleet.”