Hertz stock value tumbled some fifteen percent Thursday morning, following the company’s third quarter reporting, showing missed earnings estimates largely due to Tesla’s recent price cuts. Hertz has invested in an electric car portfolio of rental cars, including 35,000 Tesla models. With Tesla cutting thousands off the price of new Model 3 — seventeen percent since the start of the year — and Model Y — a whopping 26 percent in the same period — the residual value of the cars Hertz purchased dropped with them.
Tesla has been rapidly dropping prices this year to spur waning demand across the year. Hertz CEO Stephen Scherr said on Thursday the company estimates the resale value of its Tesla fleet has sunk by a third as a result of Tesla’s actions.
Hertz reports that repair costs for its 50,000-deep electric car fleet are more expensive than comparable gasoline cars as well, around double, in fact. It’s well known that Tesla repair costs are quite high, particularly in the case of crash damage. Hertz also has a fairly large collection of Polestar cars in its fleet, and premium European EVs are also quite expensive to repair.
Bloomberg reports Hertz shares are hurting, and this EV-driven beating across the third quarter will cause the company to re-evaluate its electric fleet plans.
Hertz will slow the pace of buying EVs while it learns how to manage costs, Scherr said. Hertz has 50,000 EVs currently, of which 35,000 are Tesla models. EVs account for about 11% of its total fleet.
Scherr said Hertz remains committed to buying 100,000 cars from Tesla and 175,000 EVs from General Motors Co., but the rental company won’t meet its goal to have EVs account for 25% of the fleet by the end of 2024, he said. The first order of business is to work with parts suppliers to lower repair costs. As EV prices settle, Hertz will buy more of them, he said.
“We have an opportunity to buy these cars now at roughly a third less than where we bought the initial component of our Teslas,” Scherr said. “We’re ultimately better buyers on a falling price where the margin composition on those cars will be better. They will be even better to the extent that we solve the issues around damage and cost.”
Hertz plans to buy 10,000 EVs from GM this year and has commitments to purchase another 165,000, he said.
Residual prices of used vehicles are down across the board in the U.S., as 2022 was a banner year for used vehicle values. As the market trends back toward a more normal way of life, Hertz is making less money selling its used rental cars.