In a bold move aimed at disrupting the car rental industry three years ago, struggling Hertz Global Holdings HTZ placed a massive order for 100,000 Teslas, betting big on electric vehicles (EVs). However, a new report sheds light on the reasons behind the strategy’s spectacular failure, raising questions about the viability of large-scale EV adoption for rental companies.
Ambitious Vision, Harsh Reality
The initial plan, led by new owners Tom Wagner and Greg O’Hara — two Wall Street finance executives who pulled Hertz out of bankruptcy — was brimming with ambition, according to a new Bloomberg report.
Mark Fields, the former Ford CEO who joined Hertz as a director, had this to say on the company’s electrification goals three years ago: “Our approach is very strategic and very deliberate in terms of how we want to disrupt ourselves, and hopefully disrupt the industry.” The vision included a nationwide charging network, partnerships with Uber, and Hertz positioning itself as an industry leader in the electric revolution.
However, this dream quickly unraveled. Tesla price cuts significantly devalued Hertz’s EV fleet. According to the report, “by piling into EVs as car prices were peaking…the two [Wagner and O’Hara] had made the most classic of Wall Street errors, buying high and selling low.”
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Tesla’s Electric Shocks
Electric vehicles presented additional challenges. Hertz’s Teslas got into accidents four times more often than the company’s other vehicles because “newbie Tesla drivers who were not used to the car's instantaneous acceleration and immediate braking,” leading to skyrocketing repair bills.
Replacing a Tesla’s radar assembly for its Autopilot system can reportedly cost a staggering $1,500, with calibration pushing the total to $3,000. In 2023, Hertz reported the cost of operating its vehicles was $5.5 billion, up 13% from the previous year and 39% from 2021, partly because of collision and damage.
Compounding these issues was a lack of readily available charging infrastructure and customer hesitancy towards unfamiliar electric vehicles. As Rudy Gardner, president of Teamsters Local 922 representing Hertz workers in Washington, noted, “People didn’t want to charge them. At the end of the night, that’s all we had left, so they’d go to Avis.”
Leadership Struggles Add Fuel To Fire
These operational hurdles were further compounded by internal disagreements. CEO Stephen Scherr‘s background in finance (he was previously Goldman Sachs‘ CFO) wasn’t ideal for the operational challenges presented by the large-scale EV rollout.
His lack of operational experience proved to be a roadblock. Furthermore, disagreements between Wagner, a firm believer in EVs, and Scherr over holding onto the Teslas further exacerbated the problems.
Back To Gas, But Questions Remain
Hertz is now offloading most of its Teslas at bumper discounts and refocusing on gas-powered vehicles. A new CEO with operational expertise is at the helm, tasked with steering the company back on track. While some aspects of the original plan, like Uber rentals and Carvana sales, proved successful, Hertz is far from the “mobile future” leader it envisioned, as per the report.
Hertz’s electric gamble serves as a cautionary tale for companies seeking rapid EV adoption – a well-defined strategy that considers both ambition and operational realities is crucial for success.
Price Action: Shares in the car rental company are down nearly 29% this year and last closed down 5% at $7.25, according to data from Benzinga Pro.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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