Bloomberg title: Hertz’s Tesla Fire Sale Portends EV Reckoning No One Wants
Bloomberg subtitle: The only ones making out well are used-car bargain hunters.
By: David Welch
Date: 12 January 2024
“Hertz’s Electric U-Turn
Want to buy a Tesla for less than $18,000?
Bargain hunters can find Model 3 sedans that cheap following the decision by rental-car giant Hertz to unload a third of its electric-vehicle fleet onto the used-car market in a reversal of its strategy to buy up EVs and rent them out to travelers.
This is good news for shoppers wanting an affordable EV and bad news for virtually everyone else.
Current owners of Teslas and other brands’ EVs will see the value of their cars decline. A further drop in those values will do more damage to Tesla’s ability to offer attractive leases. General Motors and Polestar, which had deals to sell EVs to Hertz, can’t count on the company buying as many as previously planned.
Hertz Chief Executive Officer Stephen Scherr left Goldman Sachs in early 2022 to lead the car renter out of bankruptcy and made EVs a big part of the company’s turnaround strategy. Tesla sales were soaring, so Hertz’s new owners figured consumers also would want to rent them. With such hot demand, the vehicles seemed poised to retain their value in the used market, which is crucial to rental companies’ economics.
It worked for a while. But when Tesla’s growth slowed and CEO Elon Musk decided to sacrifice resale values and profit margins for sales, anyone owning the company’s cars took one hit after another, including Hertz.
Scherr signaled in October he would cut back on EVs when the company’s earnings missed expectations due to higher depreciation and repair costs from its electric fleet. He said Hertz would have beaten analysts’ earnings estimates if not for the damage that Tesla price cuts and repair costs did to the bottom line. For the fourth quarter, Hertz will take a $245 million charge related to depreciation expenses.
Individual Tesla owners also haven’t fared well. Over the course of 2023, the value of one-year-old EVs fell 35% in the US, about double the depreciation of used internal combustion vehicles, according to researcher Cox Automotive.
This is particularly problematic for Tesla owners who have financed their purchase and want to sell their car. Many now have negative equity, according to Cox, meaning their vehicle has depreciated in value faster than they’ve repaid their loan.
For loans originated in the first quarter of 2022, after 18 months, the average electric car had $9,400 in negative equity. The average internal combustion engine vehicle owner also lost equity last year, but only had $3,700 in negative equity, Cox said.
Hertz’s move also will hurt carmakers and their grand ambitions for EVs. In September 2022, the rental company announced plans to order as many as 175,000 EVs from GM over five years.
Scherr told me Thursday that while Hertz will continue to purchase EVs from GM, the agreement announced more than a year ago was non-binding, and his company will buy the cars over a longer period of time. Hertz touted a similar deal in April 2022 to buy 65,000 EVs from Polestar.
Automakers already were putting off some EV investment because sales growth has slowed. GM, for one, is delaying the expansion of an electric pickup truck plant outside Detroit until the company can get a better handle on future demand. A big fleet buyer backing out of the market makes the outlook for EV sales even murkier.
This doesn’t mean EVs are a flash in the pan. US sales rose 40% in the fourth quarter from a year earlier. A survey by S&P Global Mobility last year found 67% of participants would consider one.
But until more affordable models roll out and charging infrastructure improves, consumers in showrooms and at the rental counter are going to have reservations.”
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