News built for finance pros
CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.
Hertz, one of the world’s largest rental car companies, once went in on electric vehicles (EVs) in a big way. In 2021, it ordered 100,000 EVs from Tesla. It predicted that a quarter of its fleet—which numbers around 500,000 vehicles—would be electric by 2024. It advertised the move to EVs with ads featuring Tom Brady and a campaign about its plans to “electrify major cities” like New York, Atlanta, and Houston.
So many were surprised when Hertz announced it would be selling 20,000 of its EVs, or about a third of its total electric fleet. It cited the high cost of repairing EVs as one reason why. But its CEO, Stephen Scherr, also noted that demand for EVs was lower than Hertz had anticipated. “We may have been ahead of ourselves,” he said during a CNBC interview.
Hertz’s move follows other indicators that the EV industry is experiencing some growing pains, at least in the US. Though US EV sales reached a record 300,000 in Q3 2023, the pace of adoption has leveled off. Many EV dealers have excess inventory. And GM and Honda recently canceled a deal to work jointly to develop EVs.
But Hertz’s decision doesn’t spell doom for the EV market, Elizabeth Sturcken, managing director of corporate partnerships at the Environmental Defense Fund, told CFO Brew.
“This was a straightforward business decision,” she said. Tesla cut its prices in 2023 due to competition from Chinese EV makers, which “led to higher depreciation costs than Hertz likely estimated upon acquiring the vehicles,” Sturcken said, causing the company’s valuation to drop.
Hertz’s big push toward EVs was likely somewhat premature. “For EVs to work well in a rental application, travelers will need to know where they can charge so that the driving experience is seamless,” Sturcken said. Renting an EV “in a place you don’t know well presents new challenges,” she observed.
But charging stations are in short supply in much of the US, according to analysis from McKinsey. The country would need 20 times as many charging stations as it has now to be able to meet the Biden administration’s goal of having half of all vehicles sold be zero-emissions by 2030. And charging stations are disproportionately located in higher-income cities, meaning many drivers lack access to them.
“We need the grid infrastructure and the charging infrastructure to match the speed of vehicle production,” Sturcken said.