Hertz is selling off a third of its electric vehicle fleet, which is predominantly made up of Teslas, and will buy gas cars with some of the money it makes from the sales. The company cited lower demand for EVs and higher-than-expected repair costs as reasons for the decision.
The sell-off began last month and will continue through 2024. As some electric vehicle-focused blogs have noted, they’re being sold at steep discounts. The company said in a Thursday morning filing that it is recognizing “approximately $245 million of incremental net depreciation expense related to the sale,” which is a dry way of saying it’s taking a bath on the decision. Hertz told shareholders that it believes it will be able to make up that loss in the coming years.
Hertz’s move to slash its EV fleet comes as electric vehicle sales growth has cooled from record highs. The news also follows recent comments from Hertz’s global CEO Stephen Scherr about how the rental giant was dealing with high repair costs — in part because many of the Teslas were being used by Uber drivers — and dramatic depreciation thanks to Tesla’s drastic price cuts.
Just two years ago, Hertz announced plans to buy 100,000 EVs from Tesla by the end of 2022. The news helped Hertz distance itself from a chaotic bankruptcy and pushed Tesla’s valuation over the $1 trillion mark for the first time. But it never happened.
Instead, as of October 2023, Hertz had only purchased 35,000 Teslas and its entire electric fleet included about 50,000 EVs total. Scherr maintained at the time that his company was “committed” to buying 100,000 cars from Tesla, even while he admitted that the automaker’s price cuts had shrunk the value of its modest EV fleet.
Hertz didn’t just overpromise with Tesla. It announced plans in 2022 to buy up to 175,000 EVs from General Motors, and another 65,000 from Polestar. The company did not say Thursday how its decision to sell a third of its EV fleet will impact those plans, and didn’t immediately respond to a request for comment.
Hertz is selling off a third of its electric vehicle fleet, which is predominantly made up of Teslas, and will buy gas cars with some of the money it makes from the sales. The company cited lower demand for EVs and higher-than-expected repair costs as reasons for the decision.
The sell-off began last month and will continue through 2024. As some electric vehicle-focused blogs have noted, they’re being sold at steep discounts. The company said in a Thursday morning filing that it is recognizing “approximately $245 million of incremental net depreciation expense related to the sale,” which is a dry way of saying it’s taking a bath on the decision. Hertz told shareholders that it believes it will be able to make up that loss in the coming years.
Hertz’s move to slash its EV fleet comes as electric vehicle sales growth has cooled from record highs. The news also follows recent comments from Hertz’s global CEO Stephen Scherr about how the rental giant was dealing with high repair costs — in part because many of the Teslas were being used by Uber drivers — and dramatic depreciation thanks to Tesla’s drastic price cuts.
Just two years ago, Hertz announced plans to buy 100,000 EVs from Tesla by the end of 2022. The news helped Hertz distance itself from a chaotic bankruptcy and pushed Tesla’s valuation over the $1 trillion mark for the first time. But it never happened.
Instead, as of October 2023, Hertz had only purchased 35,000 Teslas and its entire electric fleet included about 50,000 EVs total. Scherr maintained at the time that his company was “committed” to buying 100,000 cars from Tesla, even while he admitted that the automaker’s price cuts had shrunk the value of its modest EV fleet.
Hertz didn’t just overpromise with Tesla. It announced plans in 2022 to buy up to 175,000 EVs from General Motors, and another 65,000 from Polestar. The company did not say Thursday how its decision to sell a third of its EV fleet will impact those plans, and didn’t immediately respond to a request for comment.
Image Credits: Joe Raedle/Getty Images / Getty Images
Hertz made a splash in 2021 when it announced that it would buy 100,000 Tesla Model 3 sedans in a little over a year. Six months later, the rental car company said it would buy 65,000 Polestars over five years. It appeared that the EV transition was about to sweep the rental car market.
On Thursday, the sweep sputtered.
Hertz said in an SEC filing that it would be selling 20,000 of its EVs and replacing them with fossil fuel–powered vehicles. Another sign of EV momentum slowing? Perhaps. But it’s more likely a precautionary tale for how businesses should assess new markets — and how not to introduce a new product to your customers.
After Hertz started buying EVs, it directed most of them to Uber drivers. Uber was pushing drivers toward EVs in a number of markets, cities like New York were enticing them to make the switch, and they had attractive operating costs relative to gas-powered cars. Uber drivers also rented the cars for longer periods of time, Hertz said, meaning that fewer employees were needed to support a given number of vehicles. Plus, maintenance costs were lower, and Hertz was able to rent them at higher prices.
“Electric vehicles open the door to our growing presence in ride-share, where electrification is a fast approaching requirement not merely an option, in a channel where we are uniquely positioned,” Hertz CEO Stephen Scherr said in the company’s Q3 earnings call.
But while maintenance costs may have been lower, repairing damage from collisions ended up being higher than expected. Given that Teslas cost more to repair, that shouldn’t come as a surprise. They’re relatively new vehicles, and body shops don’t have as much experience with them. It’s a problem that’s not unique to Teslas: Fixing a Volkswagen costs more than fixing a Chevy, for example. Why Hertz thought its cars would be different is anyone’s guess.
High-damage repair costs were compounded by the fact that many of the ride-share drivers Hertz rented to were either inexperienced or bad drivers or both. Hertz had “higher incidents of damage among EV ride-share drivers,” Scherr said, forcing the company to “re-underwrite the ride-share driver base.”
In other words, Hertz had to restrict which ride-share drivers could rent EVs because the bad ones were wrecking them too frequently, racking up expensive repair bills.
As a result, Scherr added, “this left leisure over-fleeted with EVs.” Translation: The EVs that couldn’t be rented to ride-share drivers were pushed onto vacationers. The company’s initial mix, aimed primarily at ride-share, where there was demand, was shifted toward leisure drivers, who had expressed some but not nearly as much interest. The problems occurred when Hertz made the change without substantially changing its EV rental experience.
The good and the bad
I had two encounters with Hertz EVs in the past year and a half. One was pretty good, the other not, and it was the second one that suggested the rental car company wasn’t up to the task.
My first Hertz EV experience was with a Tesla, the only car available at O’Hare when I booked. That experience went well. The company directed me to the counter, where an employee gave me a quick tutorial on driving and charging a Model 3. I was offered the chance to deposit $35 in case I wasn’t able to charge the car to 70% upon return, but thanks to the Level 1 (120v) charger in the frunk and Tesla’s widespread Supercharger network, I got my money back.
My second experience was looking so dire that I aborted before even loading my bags. I hadn’t selected an EV, but instead was given a choice of vehicles from a particular row. One was a Polestar 2, a car I had been eager to drive. But after finding nearby fast-charging options lacking and the car’s Level 1 charger missing, I gave up. I’ve owned one EV or another since 2015; I know that without any way to conveniently charge, the car would be more hassle than it was worth.
Now imagine how that situation would play out for someone who has never driven an EV.
Image Credits: Paul Bersebach/MediaNews Group/Orange County Register via Getty Images
Actually, we don’t have to imagine. Plenty of people have posted online about their experiences, and while some are glowing, many reflect the frustration of customers forced to use a product that the company hasn’t fully thought through.
One person posted on Reddit that they rented from a Hertz location in Manhattan that only had EVs. They had never driven an EV and didn’t agree to rent one. But it being Thanksgiving weekend, they had places to be, so took a Kia EV6 anyway. They attempted to charge at a Tesla Supercharger, at which point they discovered the car wasn’t compatible with the plug. Then they had a very typical encounter at their hotel where the Level 2 charger wasn’t working. Finally, they had to scour Manhattan to find a place to charge before returning the car.
Even experienced EV owners have found Hertz’s EV rentals frustrating. “Rental car companies need to include the L1 charger. Rental car companies need to have cars start at 80%,” Reddit user kadoro said of their Hertz experience. The first car they considered only had 40% charge, the second one had 49%, and the third one, which they picked, had 51%. Imagine renting a gas car with half a tank. People would be livid! Also, because kadoro didn’t have access to an app, they said trip planning was much harder than with their personal Nissan Leaf or Chevy Bolt.
Simple fixes
All of these are problems that could be fixed with some thoughtful planning on Hertz’s part. Here’s a brief (though not comprehensive) list of what rental car companies need to do if they are to make EVs work for their fleets:
Make sure working Level 1 chargers are included in every vehicle.Include a map of compatible charging locations either on the company’s website or app (preferably both).Deliver vehicles to customers with 100% state of charge.Upon delivery, inform the customer where the nearest compatible fast-charging location is.If fast-charging stations are absent or unreliable, the rental car company should install and maintain its own for customers to use at market rates.If it chooses not to install and maintain its own chargers for customers to use, then it should offer employee-managed charging at a reasonable cost.
That’s a pretty basic list, and something that’s well within Hertz’s (and other rental companies’) powers to fix.
Indeed, Hertz basically said as much. In its SEC filing, it all but admitted that it botched the rollout. The company said that it is trying to improve EV rental profitability by expanding EV charging infrastructure, securing more affordable repair parts and labor, and “continued implementation of policies and educational tools to help enhance the EV experience for customers.” That’s corporate-speak for “we weren’t ready.”
The timing of Hertz’s EV liquidation is perhaps surprising, but then again, most rental cars are sold after a couple years of service. It was going to happen eventually. The only reason this is news is that Hertz had to file an 8-K because of the $245 million charge it has to book. And that charge happened largely because its Teslas depreciated faster than expected after the price cuts. The reason it’s selling them now is because it shifted the cars to leisure customers before it was adequately prepared to support them.
The short of it is that Hertz did a bad job underwriting its ride-share customers, and it bought its EVs at the peak of the market. It’s true that many customers aren’t ready for EVs, but it’s also true that Hertz wasn’t ready to rent to them, either.
While other automakers are dialing back their electric vehicle plans, BMW is quietly going all in.
“The tipping point for the combustion engine was last year,” CFO Walter Mertl told journalists at a roundtable in Munich recently. The German automaker has seen sales of its fossil fuel vehicles plateau and is expecting a slow decline, he said. “Growth will come increasingly from electric vehicles.”
BMW sold a record 2.5 million vehicles last year, 15% of which were all electric. This year, the company thinks it’ll sell 500,000 EVs, or 33% more than last year.
Mertl’s statement was remarkably decisive given the company’s previously wavering commitment to EVs.
Not long ago, BMW was busy hedging its bets, creating a new vehicle architecture known as CLAR that could accommodate three different powertrains — internal combustion engine, plug-in hybrid, and full electric — on the same production line. Management wasn’t sure which direction the market was headed, so it attempted to cover its bases with one platform that it hoped would do it all.
It must not have been as easy as BMW had anticipated, because the company’s first EV built on the platform, the i4, didn’t materialize until 7 years after the first CLAR car debuted. One glance at the i4 and the compromises were obvious: The tunnel, which covers the driveshaft in the fossil fuel model, sat empty, and the space under the hood was only half full. That marked a big departure from standard practices, because automakers typically cram every nook and cranny to optimize the use of metal in the frame to save both cost and weight. The i4, for all its strengths, fell short in many areas.
For its next dedicated EV, the iX, BMW had to modify the CLAR platform so much that the company’s R&D head called it a “totally new development.” In an industry obsessed with modular and reusable platforms, that statement alone made CLAR sound like a failure.
Indeed, BMW all but said as much in September when it introduced yet another new platform, the Neue Klasse. Unlike CLAR, this one would be dedicated to EVs and the company expects the platform to boost range by up to 30% through a combination of new batteries, efficiency upgrades, weight optimizations, and refined aerodynamics.
CLAR had taught BMW a lesson, but it was an unnecessary one. The automaker had previously designed a dedicated EV platform for the i3, one that was also lightweight, efficient and modular. The batteries and motors lived in an aluminum platform that was separate from the top part of the car, which held passengers and their cargo. The bottom could have theoretically been stretched or shrunk to accommodate any number of body styles.
But the i3 was ahead of its time, and while its sales grew every year for the first five years, BMW’s management got cold feet and jettisoned its platform in favor of CLAR, which first was used for the 7-series in 2015. As recently as 2020, the company was thinking CLAR was the future.
In the last few years, though, things have changed. Plug-in hybrids, thought to be a bridge to an all-electric future, fell out of favor as research revealed that drivers didn’t plug them in frequently enough to reap the benefits. Governments around the world set end-of-life dates for new fossil fuel vehicles. And consumers started adopting EVs at a quickening pace.
Suddenly having an architecture that could host a variety of powertrains became more of a liability than an asset. It’s likely that BMW discovered through its work on the i4 and iX just how hard it was to hack an existing platform to produce an efficient and competent EV.
With the benefit of hindsight, it’s no surprise that BMW eventually announced another dedicated EV platform. What is surprising is how confident the company is in its vision for an electric future. By 2026, the company is targeting 33% of its sales to be all-electric. Mertl, the CFO, doesn’t anticipate profit margins on Neue Klasse EVs to match its fossil fuel counterparts before 2026, but CEO Oliver Zipse thinks once the company can produce enough EVs, they could be even more profitable.
BMW has been here before, proudly promising a bright electric future only to renege several years later. But with looming regulations and a more receptive market, this time really could be different.
Just imagine if the company had stuck to its guns the first time around.
Lucid Motors plans to build just 9,000 electric vehicles in 2024, only 500 to 1,000 more than it made in 2023, as it struggles with demand for its luxury sedans. If it sticks to that number, that means Lucid will wind up building around 10% of the 90,000 EVs it predicted it could make and sell in 2024 when it went public three years ago.
The chasm between the new figures and those original expectations spotlights how much freedom companies like Lucid had in promoting the reverse mergers that helped so many become publicly listed. And it’s a sign of the brutal reality Lucid now faces: that it’s still scrambling to find buyers and losing money on every EV it builds.
Lucid announced the 2024 production targets on Wednesday alongside its financial results for last year, where it shared that it lost $2.8 billion in 2023. The modest projection comes a few days after the company slashed the prices of its Air sedan by $8,000.
CEO Peter Rawlinson has spent much of the last year talking about how important it is for his company to improve its sales and marketing efforts, while also pointing to the upcoming Gravity SUV as a potential boost. The Gravity is one of the reasons Lucid originally forecasted being able to make and ship 90,000 vehicles in a few short years. In fact, in the presentation Lucid used to promote its 2021 merger with a special purpose acquisition company, it predicted the Gravity would outsell the Air sedan in 2024.
The reality, though, was that Lucid ran into a number of supply chain and production problems in the early days of the Air and in 2022 had to push back the launch of the Gravity. The company finally revealed the SUV in November 2023, and says it plans to start building them by the end of this year.
The Gravity means a lot for Lucid’s immediate future — so much so that the company announced last week that it gave Rawlinson a $6 million cash bonus for unveiling the SUV. Lucid is working on a mid-size platform meant to compete with Tesla’s Model Y, but that won’t come until late 2026 at the earliest.
There are other things that could give the company a boost. It only just recently started selling a rear-wheel drive version of its base model Air Pure, which — with the recent price cuts — now starts under $70,000. Rawlinson said Lucid ran into technical challenges with the early production of the Air Pure, but that it is now fully ramped.
Lucid also last year announced it was selling some of its EV technology to Aston Martin. Rawlinson said on a call Wednesday that Lucid continues to talk to other companies both in and outside of the automotive industry about striking similar technology licensing and supply agreements. He even said Lucid is “seeing interest in our technology for use in hybrid electric vehicles.”
Saudi Arabia, which owns a majority of Lucid Motors through its Public Investment Fund, has also agreed to purchase as many as 100,000 EVs from Lucid over the next decade. The company started shipping Air sedans to the Kingdom late last year, though Rawlinson said Lucid initially ran into “different market dynamics and intricacies unique to that market” that slowed the initial rollout. But he said Lucid “expect[s] good growth in the region this year.”
This story has been updated with details from Lucid Motors’ investor call.
