Hertz will sell electric cars after getting burned by Tesla’s price cuts

Car rental company Hertz will sell about a third of the electric vehicles in its fleet after they fell in value faster than expected, the company said Thursday. The drop in value is a blow to the company’s efforts to replace gasoline vehicles with cars that produce no tailpipe emissions.

The electric vehicles the company owned were also more likely to be involved in collisions, Hertz said, and they proved expensive to repair. The company said it planned to buy more gasoline vehicles to replace the 20,000 battery-powered cars it sold.

“Certain of these electric vehicles became unprofitable for us,” Hertz CEO Stephen Scherr said in an interview Thursday.

The company’s decision to sell 20,000 vehicles, which Mr. Scherr blamed in part on “unprecedented” price cuts by Tesla that undermined the cars’ resale values, provided fuel for opponents of the Biden administration’s policy to push the technology to promote it as a tool to tackle climate change and air pollution.

Senator John Barrasso, a Republican from Wyoming, seized on the announcement during a hearing on climate policy on Thursday.

Hertz’s decision showed that electric vehicles are expensive and unpopular, Mr. Barrasso told the Senate Energy and Natural Resources Committee. “Demand for electric cars is stagnant,” he said, adding, “so much for the Biden economy.”

Mr. Scherr implicitly placed much of the blame on Tesla, which makes about half of all electric vehicles sold in the United States, for the car rental company’s decision to sell its electric vehicles.

Tesla vehicles, which make up the bulk of Hertz’s electric fleet, fell in value after the automaker, headed by Elon Musk, cut prices by about 30 percent last year. When the price of new vehicles is drastically reduced, the value of used cars drops because buyers can get the newer versions for less.

As a result, Hertz was forced to depreciate the value of its electric cars faster than expected, which weighed on profits, Mr. Scherr said.

Rental companies like Hertz estimate how much their cars will be worth when they eventually sell them, and that estimated decrease in value is charged as an expense. If the decline is greater than expected, profits will decline.

Mr. Scherr said Tesla was less willing than other automakers to give Hertz volume discounts on replacement parts. “Tesla is new to the game,” he said, suggesting the electric car company’s relative inexperience in serving car rental companies played a role in that decision.

Tesla did not respond to a request for comment.

Hertz’s plan is at least a temporary turnaround for the company, which had announced in 2021 that it would buy 100,000 Teslas as part of a broader effort to electrify its rental fleet.

But the agreement did not set a deadline for Hertz to buy the cars, and the company only purchased a fraction of that number. Hertz also offers electric vehicles from other manufacturers, including Kia, General Motors, Volkswagen and Polestar.

One possible reason Hertz’s electric vehicles were involved in more accidents, Mr. Scherr said, was that many people renting these cars had no experience with the technology, despite the company’s efforts to educate customers. Electric cars accelerate faster than petrol cars and are heavier. Demand for the vehicles was also less than the company expected, Mr. Scherr continued.

Hertz’s decision will likely reinforce the argument by some conservatives, including former President Donald J. Trump, that electric vehicles are overhyped. “It will fuel the negative narrative for electric vehicles at this point,” said Jeremy Robb, senior director of economic and industry insights at Cox Automotive.

But Mr. Robb noted that sales of electric vehicles in the United States last year were almost 1.2 million, and were up 40 percent in the last three months of 2023 compared to the same period in 2022. “There is still becoming a market for electric vehicles,” he says. said.

Hertz is not giving up on its plans to electrify its fleet or buy more Teslas, Mr. Scherr said. But, he said, the market needs to develop further.

“Tesla is among the best-selling cars in America,” he said, “but it’s not yet the best rental car.” Mr Scherr added: “Those two didn’t grow together as quickly as many people, including ourselves, thought. But they will.”