In a strategic move driven by rising expenses related to collision and damage, Hertz Global Holdings (HTZ.O) announced on Thursday its decision to offload approximately 20,000 electric vehicles (EVs) from its U.S. fleet. The rental giant will shift its focus towards gas-powered vehicles, marking a notable deviation from its earlier commitment to electrification.
The news sent ripples through the market, causing a 3% drop in Hertz’s shares at market open. The company, known for operating a diverse range of vehicles, including those from electric vehicle market leader Tesla Inc (TSLA.O) and Swedish EV maker Polestar, had previously set ambitious targets for its EV fleet.
Hertz had initially made headlines by pledging to order 100,000 Teslas by the end of 2022, a commitment that was later supplemented with a decision to acquire up to 65,000 units over the next five years from Polestar. However, the recent announcement signals a change in direction, citing increased expenses associated with collision and damage, primarily linked to electric vehicles.
“Expenses related to collision and damage, primarily associated with EVs, remained high in the quarter,” explained Hertz in a regulatory filing on Thursday. The decision to sell a significant portion of its electric fleet comes as the company grapples with the financial implications of these challenges.
Hertz, which had set an ambitious target for 25% of its fleet to be electric by the end of 2024, now faces a shift in its electrification strategy. The company expects approximately $245 million in incremental depreciation expenses in the fourth quarter of 2023 due to the proposed sale, with a warning of a corresponding impact on adjusted corporate core profit for the period.
Despite the move away from electric vehicles, Hertz expressed its commitment to enhancing the profitability of its remaining EV fleet. The company’s used car website currently lists more than 700 electric vehicles for sale, featuring popular models such as BMW’s i3, Chevrolet’s Bolt, and Tesla’s Model 3 and Model Y SUVs.
This decision by Hertz raises questions about the broader challenges facing the electric vehicle industry, especially concerning the costs associated with repairs and maintenance. As EVs gain popularity, concerns about the higher expenses related to collision and damage could become a pivotal factor for businesses managing large fleets.
The rental firm’s pivot to gas-powered vehicles underscores the complexities involved in transitioning to an electric future. While electric vehicles are celebrated for their environmental benefits and lower operating costs, challenges such as repair costs and potential depreciation have become evident hurdles for companies like Hertz.
Industry experts speculate that Hertz’s decision could influence other rental companies and fleet operators, prompting a reevaluation of their electric vehicle adoption plans. The move may also impact the relationship between rental companies and electric vehicle manufacturers like Tesla and Polestar, raising questions about the long-term viability of such partnerships.
As Hertz recalibrates its vehicle portfolio, industry observers will be closely watching for further developments in the rental giant’s strategy amid the evolving landscape of the automotive industry. The decision to sell a substantial number of electric vehicles emphasizes the delicate balance companies must strike between sustainability goals and financial viability in an ever-changing market.