In October, General Motors and Honda Motor announced that they were canceling plans to jointly develop affordable EVs in the face of slowing demand. Over the course of 2023, Tesla cut the prices of its cars across the world, aiming to reignite demand as consumer spending slowed and the EV market became even more crowded.
Hertz CEO Stephen Scherr told CNBC’s Jim Cramer on “Squawk on the Street” on Thursday that the company’s move, which followed large purchase orders of Tesla and GM EVs, was “responding to the reality, which is we’re trying to bring supply in line with demand.”
“The reality of EVs and Tesla’s being the best-selling car will, at some point, render them the best rental car,” Scherr said. “It’s not yet, so we may have been ahead of ourselves in the context of how quickly that will happen, but that will happen.”
Hertz said it would be selling about 20,000 electric vehicles. It would then use some of those proceeds to buy internal combustion engine cars. The company would also be taking a $245 million incremental net depreciation expense as a result.
However, Hertz said in a regulatory filing that it expects to improve its bottom line by an amount equal to $245 million over the next two years by replacing those EVs with internal-combustion-engine cars.
The company had already indicated on its third-quarter earnings call in October that it was slowing its purchase of EVs, citing MSRP declines in EVs driving down the fair market value of its cars. The company said about 11% of its entire fleet in October was EVs.
On Oct. 25, 2021, Hertz first announced plans to grow its fleet of battery-electric vehicles with “an initial order of 100,000 Teslas by the end of 2022.”
A commercial featuring repeat Super Bowl champion Tom Brady, alongside parked Tesla Model 3 electric sedans in a Hertz garage, accompanied the announcement.
Wedbush analyst Dan Ives said on CNBC’s “Last Call” on Thursday that the move to sell part of its Tesla fleet is a “black eye for Hertz,” adding that he believes Hertz miscalculated how its move to introduce EVs and Teslas to customers would play out from a marketing and roll-out standpoint.
Part of Hertz’s original thesis into investing in EVs is that customers would be eager to rent them for a variety of reasons, such as trying one for the first time, avoiding high gas prices or choosing a more environmentally friendly rental car.
Scherr said that sort of experimentation was happening, but “not happening at a level of demand that justifies us maintaining a fleet of this size at this moment in time.” Tesla’s recent decision to lower the price of its vehicles also weighed into Hertz’s decision given the impact on deprecation, Scherr added.
Hertz had previously set a goal to have a quarter of its fleet be EVs by the end of 2024. Scherr said taking this course instead was about financial performance and operational integrity.
“A smart company is one that’s agile, makes an adjustment, takes away the distraction — financial and operational — and moves on,” Scherr said.