Source: Sina Technology
Author: Zheng Jun

It's only been more than two years since the high-profile announcement of the transformation to electric vehicles, the world's largest car rental company$Hertz Global (HTZ.US)$I've already regretted it. They now want to sell a large number of electric cars and continue to buy fuel vehicles. Countries around the world have introduced climate countermeasures one after another, and now that major car companies are fully starting the electrification transformation, is Hertz reversing the wheel?

Global car rental giant Hertz submitted regulatory documents this month, announcing plans to sell 20,000 electric vehicles from its US fleet and use the proceeds to purchase fuel vehicles. Hertz said that demand for electric vehicles in the rental market is too low and that maintenance costs for electric vehicles are higher than expected are the main reasons they decided to sell electric vehicles.

Hertz is the world's largest car rental company, a Fortune 500 company, with a 36% share of the US car rental market and a fleet of more than 430,000 vehicles. Its business covers 160 countries and markets around the world, and includes car rental businesses of many sub-brands such as Hertz, Dollar Rent, and Thrify Car.

Proudly purchasing 100,000 Tesla cars

Going back in time to October 2021, Hertz proudly announced a major transformation into electric vehicles and plans to purchase 100,000 vehicles over the next five years$Tesla (TSLA.US)$. Mark Fields (Mark Fields), then CEO of Hertz, said, “Electric vehicles have become mainstream in the market. We are only just beginning to witness global interest and demand for electric vehicles, and Tesla is the only company that can manufacture electric vehicles on a large scale.”

Hertz had just come out of bankruptcy at the time, and ambitiously began investing in the future. Due to the shutdown of various parts of the United States due to the COVID-19 pandemic, demand in the rental car travel market dried up, car rental giant Hertz's revenue fell sharply, and was forced to file for bankruptcy in May 2020. It did not end bankruptcy protection until July 2021, and was re-listed and traded on the NASDAQ at the end of that year.

Global car rental giant Hertz's switch to electric vehicles not only brought direct orders to Tesla, but also brought more impetus to the electrification transformation of global car companies. While purchasing Tesla in the US market, Hertz also announced plans to purchase 65,000 Geely's Polestar electric vehicles and 175,000 Volkswagen electric vehicles in overseas markets in the future.

Although Hertz did not announce the purchase of Ford's electric models, Ford CEO Jim Farley (Jim Farley) publicly expressed his high appreciation. On Twitter, he said, “Kudos to Fields and the Hertz team for choosing a great American car brand to move to an electric and connected future.”

It is worth mentioning that Ford is also making a big switch to electric vehicles, launching electric versions of the Mustang and F-150 pickups one after another, hoping to challenge Tesla's dominant position in the US electric vehicle market. Furthermore, Ford Motor Company is the largest supplier in the US car rental market. Obviously, Ford also hopes that Hertz will be able to purchase its own electric vehicles in the future.

The end of 2021 was also at the peak of the US stock market. Technology stocks led the rise, and Tesla was one of the technology companies whose stock prices soared the most. After Hertz made a high-profile announcement to purchase 100,000 Tesla vehicles, Tesla's market capitalization once broke through the $1 trillion mark, becoming the first car company to enter the trillion dollar market capitalization club. Although Tesla's stock price has declined markedly in the past year, and its current market value is less than 680 billion US dollars, it is still the car company with the highest market capitalization in the world.

12,000 fewer Tesla vehicles a year

According to the electrification transformation plan announced by Hertz at the time, electric vehicles will account for a quarter of its fleet by the end of 2024. If you calculate Hertz's US fleet size of more than 430,000 vehicles, that means you need to own at least 110,000 electric vehicles. However, it seems that Hertz is not promoting the transformation of electric vehicles according to the original plan, and is even continuing to sell the number of electric vehicles.

Hertz is a listed company and needs to list the size of assets in regulatory documents, and the number of fleets is a core asset. Regulatory documents show that at the beginning of 2023, Hertz America still had 471,000 Tesla vehicles, accounting for 11% of its total US fleet; by the end of the year, there were only 35,000 Tesla cars left.

In other words, in the past year alone, the number of Tesla in Hertz America has been reduced by 12,000 units, and the size has been reduced by a quarter. Prior to this announcement of the sale of electric vehicles, Hertz did not explain why Tesla was being sold on a large scale.

It should be pointed out that CEO Fields, who previously announced the purchase of 100,000 Tesla vehicles, left in 2022, and the current CEO of Hertz is Stephen Scherr (Stephen Scherr). Shaul comes from the financial industry. He worked for Wall Street giant Goldman Sachs for 28 years and became Goldman Sachs CFO before leaving his job. The CEO change was also one of the reasons Hertz changed its mind.

Coincidentally, German car rental company Sixt also said at the end of last year that they have not bought Tesla since 2022 and will sell current Tesla in batches according to regular fleet renewal plans. However, Sixt has not given up on its goal of transforming electric vehicles and is still purchasing other electric vehicles. It plans to achieve 70-90% electric vehicles in the European fleet by 2030.

Electric vehicle maintenance costs are too high

Why did Hertz publicly announce that it would sell electric cars, mainly Tesla, and buy fuel cars again after just over two years? The Hertz announcement mentioned two major reasons why electric vehicle maintenance costs are too high and demand in the car rental market is low.

Morgan Stanley analyst Adam Jones (Adam Jones) believes that Hertz's move to sell electric vehicles once again shows that the market needs to lower demand expectations for electric vehicles. Although consumers save on fuel costs by driving electric vehicles, electric vehicles still have many hidden costs, and repair costs for electric vehicle collision damage are still high.

Although the maintenance requirements of electric vehicles are much lower than those of fuel vehicles because there is no need to change the oil or replace the timing belt, the maintenance cost of electric vehicles is far higher than that of fuel vehicles in the event of a collision, thus driving the insurance costs of electric vehicles to rise.

Marc Fredman (Marc Fredman), chief strategy officer of CCC Intelligent Solutions, an American auto repair insurance industry research company, explained that in the event of a collision, electric vehicles require more parts to be replaced rather than simple maintenance, and the maintenance process is also more complicated, and dismantling parts also requires more steps and protection, all of which increase maintenance costs.

According to data from CCC Intelligent Solutions, the average cost of collision repair for electric vehicles in the US in 2022 is 6587 US dollars, while the average cost of collision repair for all models is 4,215 US dollars. According to data from insurance company Insurify, the average monthly premium of electric vehicle owners is more than 100 dollars higher than that of fuel vehicles.

Furthermore, charging speed is still the reason that affects the popularity of electric vehicles. JD Power analyst Tyson Jominy (Tyson Jominy) pointed out that electric vehicles are not a demand in the rental car market; the main reason is charging. People who rent a car at Hertz are usually travelers staying in hotels. Their travel time is also tight, and they don't want to spend time looking for charging stations and waiting to recharge.

Tesla cuts prices eight times in a row

However, Hertz decided to sell Tesla models for another important reason. Affected by Musk's repeated Tesla price cuts, Tesla's used car market prices also fell sharply in the past year, which directly lowered the Hertz team's remaining assets.

As a car rental giant, the residual value of hundreds of thousands of vehicles is Hertz's core asset, and they need to sell vehicles regularly to renew their fleet. If the value of used cars shrinks drastically, it also means that Hertz's assets depreciate. Therefore, when Hertz sells Tesla to buy fuel vehicles, it is also to preserve the value of its own assets.

After the outbreak of COVID-19, due to the impact on the global supply chain, there was a long-term shortage of some core components, and car prices in the US market remained high for a while, including electric vehicles represented by Tesla. When Hertz announced the purchase of Tesla, it was at the peak of the price of electric vehicles in the US.

However, starting at the end of 2022, as Musk took the initiative to lower Tesla's sales price several times, the second-hand price of electric vehicles represented by Tesla also began to decline. Musk has lowered Tesla's sales price several times, mainly to stimulate sales to meet sales targets and comply with the Biden administration's federal tax refund and subsidy policy.

According to rough statistics, Musk cut Tesla's starting price eight times last year. Currently, the Model 3 starts at 39,000 US dollars (you can also enjoy a federal tax refund of 7,500 US dollars), down 17% from the previous year; while the total price of the Model Y has been reduced by 25%. When talking about drastic price cuts, Musk said he believes it is necessary to sacrifice profits in exchange for more sales.

According to data from the automotive industry agency Cox, the sales volume of electric vehicles in the US was close to 1.2 million units last year, but the share of overall car sales was only 7.6%. Although it was higher than 5.9% in 2022, it did not meet the previous expected target. Meanwhile, Tesla's sales volume in the US reached 654,900 units, an increase of 25.4% over the previous year.

Increased competition in the market is another reason for the decline in the price of new electric vehicles. Currently, there are more than 40 electric vehicle models on sale in the US. According to statistics from industry analysis agency KBB, the price of electric vehicles in the US fell by more than 20% last year, and the average price dropped from 65,300 US dollars to 50,600 US dollars. The reduction in the price of new cars will inevitably lead to a price collapse in the used car market.

Tesla also sells used cars

According to statistics from the automotive industry analysis agency iSeecars.com, the price of used electric vehicles in the US fell by 33.7% last year, while the price of ordinary fuel vehicles fell by only 5.1%. The agency predicts that in 2024, the price of used electric vehicles in the US will depreciate faster than ordinary fuel models.

The sharp drop in the price of electric vehicles is also a reason why hybrids are being squeezed. The popularity of hybrid models directly squeezes the market demand for electric vehicles. According to an analysis by iSeecars.com, American consumers currently prefer hybrid models. Seven of the top ten best-selling models in the US last year were all hybrid models, including Toyota, Ford, and Kia hybrids.

The Tesla purchase was reduced by more than half in two and a half years, which also caused considerable losses to Hertz. According to IseCars.com analyst Karl Brauer (Karl Brauer), although Hertz's sale of 20,000 electric vehicles will not have a huge impact on the used electric vehicle market, it is certain that Hertz itself will bear losses. When announcing the sale of electric vehicles, Hertz said that in the fourth quarter of last year, depreciation expenses due to the sale of electric vehicles were included in the fourth quarter of last year.

Open the second-hand sales page of Hertz America's official website, and you can see that there are more than 700 electric vehicles for sale. Obviously, Hertz is not selling 20,000 electric cars at once, but in batches. Among them, the Tesla sold was mainly Model 3 and Model Y, and the mileage was around 30,000 to 50,000 miles (about 50,000 to 80,000 kilometers), and the lowest price was even only 20,000 US dollars, which is more than half less than when purchased at the end of 2021.

However, Hertz has another direct competitor for selling used Tesla — Tesla. Tesla also sells used cars themselves, and the price is more affordable than Hertz. Also the 2021 Model Y. The 45,000-mile car sold for $31,900 on Tesla's official website, while the 68,000-mile car sold for $34,900 at Hertz.

Hertz, which once proudly wanted to buy 100,000 Tesla cars, was really afraid.

Editor/Somer