Hertz Global Holdings Inc. has announced plans to sell about one-third of its electric vehicle (EV) fleet in the United States. This move, which involves the sale of approximately 20,000 electric vehicles, marks a notable pivot back towards gas-powered cars.
The decision to reduce its EV fleet comes after Hertz observed higher repair costs for these vehicles compared to their gas-powered counterparts, impacting the company’s bottom line. The sales of these EVs began last month and are set to continue throughout 2024. Hertz’s CEO, Stephen Scherr, had previously indicated a slowdown in the company’s EV expansion, citing slower than expected adoption rates.
“We may have been ahead of ourselves,” CEO Stephen Scherr told CNBC.
“There must be something wrong with EVs,” Jim Cramer said. “In the sense that maybe they’re hard to repair, maybe people don’t necessarily know how to drive them, maybe there are accidents because people, or they wreck the cars because they don’t know how to do it.”
The strategic shift is not just a fleet adjustment but also a financial maneuver. Hertz expects to record a non-cash charge of approximately $245 million in its fourth-quarter results, attributed to incremental net depreciation expenses related to the EVs. The company plans to reinvest a portion of the proceeds from the EV sales into purchasing more internal combustion engine vehicles, aiming to better align its fleet with current customer demand.
Morgan Stanley analyst Adam Jonas stated in a memo, “The car rental firm’s move was a warning across the EV space and it was another sign that EV expectations need to be ‘reset downward across the market.'” In a regulatory filing on Thursday, Hertz announced, “Expenses related to collision and damage, primarily associated with EVs, remained high in the quarter.”
“While consumers enjoy the driving experience and fuel savings (per mile) of an EV, there are other ‘hidden’ costs to EV ownership,” Jonas said.
Hertz, one of the world’s leading car rental companies, has a history that spans over a century. However, its journey into electric vehicles is a more recent development.
Hertz began exploring the EV market in the early 2010s. They started by adding a small number of electric vehicles to their fleet in select markets. This was part of a broader initiative to offer more environmentally friendly rental options.
Over the years, they’ve expanded their EV offerings, incorporating more electric models as they became available from various manufacturers. Hertz has formed partnerships with several electric vehicle manufacturers to boost its EV fleet as well.
The transition to an EV-dominated fleet presented Hertz with various challenges, including the need for EV charging infrastructure and addressing range anxiety among customers. This has shown the challenges in the EV market, including concerns about the availability and cost of charging infrastructure, range anxiety, and the overall readiness of consumers to transition to electric vehicles.
Hertz’s shares reacted to this news with a 4.3% drop to $8.95 in New York trading.
The move could be a bellwether for other companies in the industry as they navigate transitioning to more sustainable vehicle options.