Hertz has big electric car plans. Following its bankruptcy during the Covid-19 pandemic, the company has pledged to make the move to electric cars in a big way and kicked that off by placing an order for 100,000 Tesla Model 3 sedans. It also says it has ordered 65,000 Polestar 2 vehicles plus another 150,000 EVs from General Motors. The goal is for 25% of the half-million cars in its rental fleet to be electric by the end of 2024.
On an earnings call last week, Hertz CEO said, “At the end of [March], we had about 50,000 electric vehicles in our fleet, comprising approximately 10% of total cars.” The company is forecasting nearly 2 million EV rentals in 2023 — approximately 5 times the number during 2022.
What does all this mean for the EV revolution in America? Let’s count the ways:
- More public awareness of electric cars.
- Decreased resistance to electric cars.
- More EV chargers available to the driving public.
- More used EVs coming to market in the future.
- Less tailpipe pollution in the air over America.
Electric Cars & Rental Fleets
Oppenheimer & Co. analyst Ian Zaffino tells CNBC that EVs have the potential to transform the business model for rental car firms. That’s partly because depreciation for electric cars is lower than that for cars with internal combustion engine vehicles, partly because rental companies like Hertz keep electric cars longer, and partly because they are cheaper to operate.
A traditional vehicle loses as much as 1.25% of its value each month, while EVs lose about 0.85% to 1%, Zaffino said. Multiply that by the 200,000 to 300,000 vehicles the company sells in any given year and the savings are substantial. “The more the vehicles hold their value, the less it costs to hold them,” Zaffino said.
What he didn’t say is what impact the latest price cuts by Tesla will have on used car values. It is basic mathematics that if new car prices go down, the value of used cars will go down as well. Things have changed significantly from last year at this time when Tesla owners could often sell their cars for more than they paid for them as Tesla continued to raise prices across the board.
Lower sales prices are great for Hertz and others because it reduces their purchase costs, but there is no free lunch. Used car values will suffer as a result. While that may not be good news for the bean counters at Hertz, it’s potentially wonderful news for those who are waiting anxiously for affordable used electric cars to come to market.
Electric Cars & Ridesharing
Hertz is seeing a big increase in the number of rideshare drivers who rent its electric cars. It’s a segment of the rental car business that is relatively new and growing. The rideshare drivers typically rent them by the week or month, which allows rental firms to save on routine expenses like cleaning and to contain marketing costs. Those drivers usually pay a lower daily rate than a normal retail customer.
Hertz has told analysts that the growing EV rideshare market can be a buffer against the quarterly peak-to-trough experience that is typical in the leisure business. Everyone wants to rent a car in Fort Lauderdale during spring break, but in August? Not so much.
Hertz lets Uber drivers rent EVs for as little as $285 a week for a Chevy Bolt EUV. That increases to $334 for a Tesla Model 3 and more for a Tesla Model Y.
Uber drivers get a $1 per ride bonus for using an EV, Uber spokeswoman Alix Anfang told CNBC. In addition, drivers are eligible for higher fares as part of the Uber Comfort Electric service program, whose prices are higher than the Uber Comfort plan — which focuses on newer or more luxurious vehicles — but lower than the more expensive Uber Black service. Rental fees cover the driver’s commercial insurance while saving on gasoline and depreciation.
The savings are borne out by Tracy Lynn Young, who has driven for Uber in metro Atlanta for seven years. She said she pays $340 a week for her Tesla but can earn up to $1,800 driving on a busy weekend, thanks to the EV incentives and the curiosity of riders who request a Tesla because they’ve never been in an EV. The incentives alone nearly pay for the weekly rental fee.
As an added bonus, the cost of electricity to charge her Tesla is $120 a week less than what she used to pay for gasoline. Monthly maintenance is included and she’s saving her own car, which had racked up 95,000 miles in two years before she made the decision to rent a Tesla from Hertz. “When they want comfort, they want a ride in a Tesla,” Young said. “A lot of people want a ride in a Tesla [so] they can experience it.”
Hertz says the average driver renting an EV rather than a gasoline-powered car will earn 10% to 15% more overall. So far, 50,000 Uber drivers have rented electric cars through Hertz and driven them more than 260 million miles. Uber says 4.1% of its U.S. miles driven are in an EV, eight times more than the general population. “We have a great EV story to tell — a few actually,” Anfang told CNBC. “We’re kicking off some driver education events to help with our mission to get them into EVs.”
The company also benefits from the push for more environmentally aware corporate initiatives, Zaffino said. Hertz gets almost exactly half of its rentals from business travelers and many companies are turning to electric vehicle rentals as part of their broader plans to reduce their carbon footprints.
Hertz & BP Pulse Collaborate On Charging
Hertz is working with BP Pulse, the EV charging subsidiary of BP, to install the charging infrastructure needed for electric cars in major U.S. cities to serve both its customers and the public. One of those cities is Houston, Texas, which is the spiritual home of Big Oil in the US. Think about that for a moment.
There is no recharging fee for Hertz EV customers who return their cars with batteries that are at least 70% charged. Customers who don’t want to be bothered with such concerns can elect to pay a $35 fee up front and return the car with little to no charge if they wish.
“I think adoption will sort of continue to take hold,” Scherr told analysts on the recent earnings call. He noted that cities across the US will require Uber and Lyft networks to be all electric “by some date in the not too distant future” — typically five to seven years from now. “I would say to you that I think Hertz and our EV fleet is the most affordable entry point for drivers to get into those electric vehicles and use them. And needless to say, I’m happy in that we get more of these EVs on rent at attractive rates, but maybe most importantly, at attractive margins in terms of what we see happening,” he said.
Will the decision by Hertz to increase the number of electric cars in its rental fleet have a dramatic effect on the EV revolution in the US? Of course not. Don’t be silly. But it will help to move things along. People who drive an EV will come to appreciate the smoothness, instant acceleration, and comfort these cars provide. And they will tell their friends, who will tell their friends, and so on.
That’s how movements get started and gain momentum. The EV revolution has well and truly begun when major corporations embrace it. By 2030, everyone will wonder what all the drama over electric cars was about.
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