By Hertz, a leading player in the rental car industry, has recently made a significant move by selling off 20,000 all-electric vehicles. However, this decision has not been well received by investors, as it is expected to result in a loss of approximately $245 million.
Following the announcement, Hertz shares experienced a notable dip of 7% during premarket trading on Thursday. In contrast, S&P 500 and Nasdaq Composite futures saw minor gains of 0.1% and 0.4% respectively.
It is common for rental car companies to engage in regular buying and selling of vehicles, which can lead to both profits and losses depending on the sale price and the carrying value of the cars on their books.
Hertz is facing a unique challenge in the current market. The prices of used battery electric vehicles (BEVs) have significantly decreased, primarily due to the deliberate price cuts made by electric vehicle pioneer Tesla. In 2023 alone, Tesla slashed prices on its cars by approximately $12,000 per vehicle. The motivation behind this move was to boost sales amidst growing competition and rising interest rates, without much consideration for the residual values of existing Teslas.
When the prices of new cars are lowered, it is only natural for used car prices to adjust accordingly. This has resulted in a substantial decrease in used BEV prices, creating a more traditional price difference between new and used cars. It is worth noting that Tesla currently holds a dominating market share, accounting for around 60% to 70% of all BEVs on U.S. roads. Consequently, Tesla plays a significant role in setting the price standards for the entire industry.
Hertz has labeled this sale as a strategic move. The sale accounts for about one-third of the company’s total BEV fleet. However, the underlying rationale behind this strategy lies in the fact that renters are not yet fully prepared for the adoption of electric vehicles. While using an EV for short day trips may be feasible, the challenge arises when it comes to longer journeys, as charging infrastructure is not as readily available on the road as it is at home.
Interestingly, this announcement follows closely after the release of BEV sales data. In 2023, Americans purchased a remarkable 1.2 million BEVs, representing a substantial 45% increase compared to the previous year. Tesla, in particular, reported an impressive delivery of 1.8 million units, resulting in a year-to-date growth of approximately 40%. Their U.S. BEV sales peaked at 654,888 units, indicating a significant 25% year-over-year increase.
It is evident that BEV sales continue to experience steady growth, and the technology itself remains viable and promising. However, it is crucial to ensure that these vehicles are targeted towards drivers who are well-suited for their characteristics and limitations.
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