31 Oct 23

Pricewar forces Hertz to slow down EV pace

Hertz's EV fleet comprises 80% Tesla models.

Hertz will be electrifying its rental fleet at a lower uptake speed than originally planned. The company’s electric fleet, overwhelmingly comprised of Tesla models, suffers from the ongoing price war. But the second reason for pulling the handbrake is more surprising.   

During the earnings call for Q3 2023, CEO of Hertz Global Stephen Scherr said that “in-fleeting of EVs will be slower than our prior expectations”. The rental company points to the price cuts from Tesla, negatively influencing resale value and has delayed its target for 2024, set at operating a quarter BEVs in its fleet.

Scherr named a second, and more unexpected, reason behind the revised approach. Though BEVs are reputed for lower maintenance cost because of fewer mechanical parts, Hertz pointed to the repairs on its EV fleet, which came in more expensive than originally calculated.

“Our direct operating expenses remained controlled in the quarter as they grew with transaction volume.”, Scherr commented. “On a unit basis, we achieved productivity gains across most categories of auto. The exception remained vehicle damage costs, particularly those on our EVs.”

Immature parts supply network

As 80% of Hertz’ electric fleet wear a Tesla badge, the company is also vulnerable to the continuously changing pricing strategy from the American EV maker. Scherr again: “MSRP declines in EVs over the course of 2023, driven primarily by Tesla, have driven the fair market value of our EVs lower as compared to last year, such that as salvage creates a larger loss and therefore greater burden.”

In contrast to legacy car makers, Tesla struggles to build up nationwide aftermarket parts supply chains, creating scarcity and price hikes. The immature network drives repair costs higher and negatively influences lead times. Hertz says it is in close contact with Tesla on parts procurement.

Asides delaying its goal of 25% BEVs by 2024 - currently, it deploys 11% - Hertz oversees an order book of 175,000 electric cars from GM and 65,000 from Polestar, with a delivery spread until 2027.

Already in February, Hertz’ EV strategy showed signs of sluggish adoption, as the company was only halfway on its target order with Tesla. But the company refrained from citing a motivation at the time.

Image Source: Hertz      

Authored by: Piet Andries