It seemed like a good idea at the time. Now we know better.
Hertz, recovering from bankruptcy and the pandemic, has announced its intention to buy 100,000 Teslas at the end of 2021. The sensational move has certainly helped Elon Musk’s electric vehicle manufacturer, which has seen its market capitalization rise above trillion dollars for the first time.
Hertz has also enjoyed a boost in its market value, and the car rental giant has hired NFL star Tom Brady to show off its new fleet of Teslas.
“How do we democratize access to electric vehicles? This is a very important part of our strategy,” interim CEO Mark Fields said at the time. “Tesla is the only manufacturer capable of producing electric vehicles at scale.”
But Hertz paid near list prices for the Teslas, rather than asking for a big discount as car rental giants often do. That decision would backfire.
Last year, Musk’s electric vehicle maker cut prices on its lineup to boost sales. This not only angered individual customers who had recently purchased a higher-priced Tesla, but also crushed the resale value of Hertz’s used electric vehicles.
“High costs” of electric vehicles
Last January, the rental giant revealed it was selling 20,000 electric vehicles, pointing to expensive depreciation, weak demand and costly repairs. It fell $245 million and suffered its largest quarterly loss since the pandemic.
“The high costs associated with electric vehicles persisted,” Hertz CEO Stephen Scherr said at the time. “Efforts to combat it have proven more challenging.”
This week, Hertz announced that Scherr would be replaced by Gil West, the former chief operating officer of General Motors’ Cruise robotaxi unit. While Scherr took over after the Tesla deal, under his leadership Hertz continued to focus on electric vehicles, placing large orders for them with GM and Polestar.
The ill-fated electric vehicle push followed a difficult period for Hertz, culminating in billionaire activist investor Carl Icahn selling his substantial stake in the car rental company in 2020, days after its bankruptcy. In 2014, Icahn had begun acquiring his stake in Hertz, which was struggling. He called Hertz “a great brand” that he hoped would “return to its former glory,” and three of his allies soon landed seats on the board of directors, while the hunt for a new CEO began.
After selling his stake, Icahn said, “Yesterday I sold my stock position at a significant loss, but that doesn’t mean I don’t continue to have confidence in Hertz’s future.”
The following year, the company announced its decision to purchase Tesla. Now it’s about to welcome another new CEO, once again tasked with changing that.