A reflection of what is happening in the automotive market?

Car rental company Hertz told US stock market authorities this Thursday that it has started selling about 20,000 electric vehicles (EVs) from its fleet and that it will use part of the proceeds to purchase gasoline vehicles.

Hertz’s decision seems like a big blow, at least psychologically, to ambitious global plans to finally establish the use of electric vehicles and abandon cars with internal combustion engines. The big question now is whether what this rental company did is simply a warning or a reflection of what could happen or is already happening in the car market.

For now, investors haven’t taken the news well and are penalizing shares of Hertz and Tesla, which make up roughly 80% of the rental company’s electric vehicle fleet.

Hertz made the decision after facing higher-than-expected depreciation and repair costs for its electric vehicles, costing it US$245 million.

Moreover, apparently Hertz demand for electric vehicles is lower than expectedAccording to the company, selling a large number of them will help “better balance the supply and demand” expected for this type of vehicle.

Pivoting to its ambitious electrification goals

The company previously set a goal of making 25% of its fleet electric by the end of 2024, but it appears it has just made a major change to that strategy.

In 2021, Hertz announced it would buy 100,000 Tesla vehicles, sending the electric car maker’s shares soaring, and in 2022 it agreed with Sweden’s Polestar (owned by Volvo and China’s Geely) to buy another 65,000 electric vehicles.

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In October, Hertz CEO Stephen Scherr had already announced during its third-quarter results presentation that the car rental company would reduce its fleet of electric vehicles, which amount to just over 10% of the total, as the higher cost of operating these vehicles was impacted. its financial results.

As Scherr explained, electric vehicles are more expensive to repair than gasoline vehicles.

Problems with Tesla

Tesla represents approximately 80% of Hertz’s electric vehicle fleet. Tesla’s aggressive price cuts throughout 2023 have pushed other manufacturers to do the same with their electric vehicles, leading to a rapid depreciation in the used car market that car rental companies are very close to.

Additionally, Hertz has faced additional problems with its Teslas: They have more accidents and higher repair costs. Because the company is relatively new, Hertz executives themselves say it lacks the same number of parts and trained repair technicians as other auto companies. This makes repairs more expensive and time-consuming.

A reflection of what’s happening in the electric vehicle market?

The big question that arises at the moment is whether this decision by Hertz and the problem of demand and management of electric vehicles is a true reflection of what is happening in the market, or what may happen in the coming months.

Sales of electric vehicles continue to grow strongly, but demand is not meeting the expectations of manufacturers and other companies who have invested billions of dollars in the sector. The possibility that interest rates will remain high for a long time has forced companies to change their plans and look askance at 2024, as Reuters explained a few months ago.

Demand for electric vehicles appears to be falling and facing the same problems as years ago: Customers are concerned about their range and charging infrastructure and complain that their prices are significantly higher than those of internal combustion engine models.

Last summer, a report from consulting firm Cox Automotive found that electric vehicles were spending significantly more time in dealerships than gasoline vehicles. At the time, car dealers had 92 days’ inventory of electric vehicles, compared to 54 days for traditional gasoline or diesel vehicles.

It should be added that, as in the case of Hertz, many drivers who chose an electric car regretted their decision. In Europe, this was reflected in a YouGov study conducted by Danish startup Monta.

The survey was conducted in France, where 12% of the vehicle fleet is electric, among 6,167 owners of this type of vehicle. The results show that 54% of them, more than half, regretted choosing an electric car.

This article was prepared in part with information from EFE and Reuters.

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