Tesla’s price cuts throughout the third quarter provided challenges for rental company Hertz (NASDAQ: HTZ), who adopted the electric automaker’s vehicles in 2021 for its fleet. The swings in pricing hindered Hertz’s Q3 earnings report, as it missed profit estimates.
Hertz said it would slow down EV adoption while it learns to manage costs, CEO Stephen Scherr said on Thursday, according to Bloomberg.
Tesla and Hertz signed a massive deal for 100,000 vehicles in 2021, marking the start of a major partnership and an overall shift in the landscape of the rental sector in the U.S.
Hertz has roughly 35,000 Teslas in its EVs, which has climbed to 50,000 total vehicles, or 11 percent of its total fleet.
Tesla, on the other hand, has been cutting prices to enable more affordability for buyers, attempting to get some vehicles as close to or even below the $30,000 price point after government and state incentives.
While car buyers are loving the discounts, investors in the company’s stock, and companies like Hertz that are dependent on maintaining healthy margins and profitability are not. The resale value of their Tesla fleet has decreased by about 30 percent, and EV maintenance costs have been higher than Hertz initially expected.
Hertz will still buy 100,000 Teslas and 175,000 GM EVs, but it will not meet the goal to have one-quarter of its rental fleet be EVs by the end of next year. It needs to lower repair costs by working with suppliers and wait for costs to settle to lower its purchase costs.
“We have an opportunity to buy these cars now at roughly a third less than where we bought the initial component of our Teslas. We’re ultimately better buyers on a falling price where the margin composition on those cars will be better,” Scherr said.
Of course, EV price cuts were not the only reason Hertz felt financial pressure during Q3. Used car costs were much higher a year ago and Hertz could sell its vehicles used for more than it would buy them for new.
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