Hertz sells 20,000 electric vehicles to buy gasoline cars

(CNN) — Hertz, which has been betting heavily on electric vehicles in recent years, decided it was time to cut costs. The company will sell a third of its electric vehicle fleet of about 20,000 vehicles and use the money to buy more gasoline cars.

Electric vehicles have hurt Hertz’s finances, executives say. As they explained, although these machines are cheaper to maintain, the cost of repairing damage is higher, and in addition, wear and tear is higher.

“Repairing collisions and damage on an electric vehicle can often cost twice as much as on a similar internal combustion engine vehicle,” Hertz CEO Stephen Scherr said in a recent meeting with analysts.

In addition, lower prices for electric vehicles in the new car market have reduced the resale value of used Hertz leased vehicles.

“The decline in electric vehicle prices throughout 2023, driven primarily by Tesla, has reduced the fair market value of our electric vehicles compared to last year, such that scrapping results in greater losses and therefore greater burdens,” Scherr said.

Simply put, people are generally willing to pay a certain amount less for a used car than for a new one. As the price of new cars falls, so does what people are willing to pay to buy a used car.

Hertz expects to incur losses of about $245 million due to depreciation of electric vehicles, averaging about $12,250 per vehicle, the company said in a filing with the Securities and Exchange Commission.

While Hertz isn’t pointing the finger at anyone directly, it appears that much of the blame lies with Tesla.

Tesla represents about 80% of Hertz’s electric vehicle fleet, and in total, electric vehicles make up about 11% of Hertz’s total rental fleet. Tesla is aggressively cutting the prices of its cars, encouraging other manufacturers to do the same with their electric vehicles. When automakers lower the prices of new cars, the value of these models on the used car market decreases, causing them to depreciate quickly.

For car rental companies like Hertz that sell a lot of cars on the used market, depreciation has a big impact on their business and is an important factor when deciding which cars to have in their fleet.

Because Tesla is a relatively new company, it doesn’t have as many parts or trained repair technicians as other auto companies, making repairs costly and time-consuming, Hertz executives said.

Let’s remember that GM and others have spent decades building a broad national parts supply chain, Scherr stressed on the call with analysts. “There is an aftermarket for parts that is obviously less mature in the context of Tesla.”

In addition to the fact that accident damage is more expensive to repair, Scherr also noted that electric vehicles are more likely to be involved in accidents. Again, Teslas, which make up 80% of Hertz’s electric vehicle rental fleet, are the main problem in those two areas, he said.

“Our job with Tesla is to monitor the performance of the vehicle to reduce the risk of damage from incidents,” he said, “and we are in very direct communication with them on parts procurement, labor and the like.” .

Hertz sells its used cars at auctions and also directly to customers on its Hertz Car Sales website.