Hertz Adapts Strategy, Shifts to Sell EVs, Including Teslas

In a surprising move, Hertz recently announced plans to sell around one-third of its electric vehicle (EV) fleet, comprising approximately 20,000 cars, mostly Teslas. This marks a departure from the company's earlier goal of converting at least 25% of its entire fleet to EVs by the end of 2024.

The decision reflects broader trends in the automotive industry, where weakening demand, consumer spending declines, and increased competition in the EV market have prompted automakers to adjust their plans, either reducing production or cutting prices to manage rising inventories.

Hertz CEO Stephen Scherr explained the shift, stating it aligns with the company's aim to balance supply with demand. Despite Tesla's reputation as a best-selling car, Scherr acknowledged that the transition to EVs might take longer than anticipated. He emphasized the inevitability of EVs, including Teslas, becoming the preferred rental cars, but noted the timing might not be immediate.

As part of this strategic shift, Hertz plans to sell around 20,000 EVs and utilize the proceeds to purchase internal combustion engine cars. The company expects a $245 million incremental net depreciation expense but foresees a corresponding improvement in its bottom line over the next two years by replacing EVs with internal combustion engine cars.

This move comes after Hertz had previously announced plans to expand its EV fleet, with an initial order of 100,000 Teslas by the end of 2022. The decision to sell part of its Tesla fleet, however, has been viewed by some analysts as a setback for Hertz, with opinions suggesting a miscalculation in the marketing and rollout strategy for introducing EVs to customers.

Hertz had initially envisioned strong demand from customers eager to experience EVs for various reasons, such as environmental concerns, fuel cost savings, or simply trying out the latest technology. However, the company found that the level of demand did not justify maintaining the current fleet size, especially considering Tesla's recent price reductions impacting depreciation.

Despite deviating from its earlier target of having 25% of its fleet as EVs by 2024, Hertz framed this strategic adjustment as a smart and agile move to enhance financial performance and operational integrity.