Tesla Price Cuts And High Repair Costs Crash Hertz’s EV Expansion Plans

Hertz is dialing back its efforts to expand its electric vehicle (EV) fleet due to unexpectedly high repair costs and Tesla’s price reductions that are affecting EV resale values. The rental car company had originally planned to ramp up its EV adoption, but is now reconsidering the pace of its electrification efforts.

In a recent earnings call, Hertz CEO Stephen Scherrre affirmed the company’s commitment to electrifying its fleet, but acknowledged that its blockbuster deal to purchase 100,000 Tesla Model 3s is encountering challenges. While electric vehicles generally have lower maintenance costs, the higher expenses associated with repairs and damages are impacting the feasibility of the deal.

And Hertz has had a lot of repairing to do, according to Stephen Scherr, the company’s CEO. The initial plan was to allocate half of the 100,000 Teslas to its rideshare operations in order to gain a competitive advantage in markets like New York City, where incentives for EVs are being provided and bans on internal combustion engine (ICE) vehicles are under consideration.

However, Uber drivers typically put their vehicles through heavy use, often resulting in a lot damages than Hertz had initially foreseen. To address the “higher incidents of damage among EV rideshare drivers,” Hertz attempted to reassign a portion of its fleet to the leisure segment. Unfortunately, the outcome fell short of the company’s expectations.

“With hindsight, this left leisure over fleeted with EVs,” said Scherr during the earnings call. “As a result, RPD (revenue per day) for our electric vehicles in leisure dropped, which contributed to the lower RPD performance for the company in the quarter.”

Read: EVs Aren’t Much More Expensive To Repair Than ICE, Unless You Own A Tesla

But that wasn’t Hertz’s only problem. “While conventional maintenance on electric vehicles remained lower relative to comparable ICE vehicles in Q3, higher collision and damage repairs on EVs continue to weigh on our results,” Scherr said.

This issue is especially pronounced with Teslas. A recent report found that EVs made by traditional manufacturers cost around five percent more to repair than combustion vehicles. Meanwhile, Teslas cost around 27 percent more to fix.

Lowering Tesla prices aren’t providing relief either

Tesla’s continuous price reductions over the past year have also taken a toll on Hertz. Apart from the rapid depreciation of these vehicles, in cases where a car is so severely damaged that it must be scrapped, the declining prices of Tesla models translate into reduced salvage value. This, in turn, results in larger losses for the company, further exacerbating the financial pressure it is currently facing.

“MSRP declines in EVs over the course of 2023, driven primarily by Tesla, have driven the fair market value of our EVs lower as compared to last year, such that as salvage creates a larger loss and therefore greater burden,” said Scherr.

More: Data Shows EV Owners Are Forced To Pay More And Wait Longer For Repairs Than ICE Drivers

As a result, Scherr explained that Hertz is slowing its “in-fleeting of EVs.” Currently, the company has around 50,000 EVs in its fleet, with 35,000 of those supplied by Tesla, per CNBC. Although the company is still committed to buying 100,00 Teslas, and 175,000 EVs from GM, it is not on target for electric vehicles to make up a quarter of its fleet by the end of 2024.

Scherr expresses optimism that damage to its EVs will decrease. In the private sector, accident rates for EVs are lower than those for internal combustion vehicles. Hertz is also collaborating with automakers to explore ways to reduce incidents that result in damage.

“Remember, in the likes of GM and other OEMs, there’s decades of establishment of a broad national parts supply network. There’s an aftermarket of parts that is there, that is less mature, obviously, in the context of Tesla,” said the CEO, adding that as the company shifts to GM EVs, initial costs will also decrease significantly compared to when it was purchasing Teslas.

Thanks to reader Marco, who brought this story to our attention.