In October, General Motors and Honda Motor announced they were abandoning plans to jointly develop affordable electric vehicles amid slowing demand. Throughout 2023, Tesla cut the prices of its cars worldwide in an effort to revive demand as consumer spending slowed and the electric vehicle market became even more crowded.
Hertz CEO Stephen Scherr told CNBC's Jim Cramer on Thursday's “Squawk on the Street” that the company's move, which followed large orders of Tesla and GM electric vehicles, “responded to the reality that is that we try to attract supply to match demand.”
“The reality of electric vehicles and Tesla being the best-selling car will eventually make them the best rental car,” Scherr said. “That’s not the case yet, so maybe we were anticipating how quickly that would happen, but it will happen.”
Hertz said it will sell about 20,000 electric vehicles. Part of the proceeds would then be used to purchase cars with combustion engines. The company would also record an additional net depreciation and amortization expense of $245 million as a result.
However, Hertz said in a regulatory filing that by replacing these electric vehicles with internal combustion engine cars, the company expects to improve its bottom line by an amount of $245 million over the next two years.
The company had already indicated in its third-quarter earnings release in October that it would slow purchases of electric vehicles, citing that lower MSRPs on electric vehicles were reducing the fair market value of its cars. The company said about 11% of its total fleet was electric vehicles as of October.
On October 25, 2021, Hertz first announced plans to expand its fleet of battery-electric vehicles with “an initial order of 100,000 Teslas by the end of 2022.”
The announcement was accompanied by a commercial that featured multiple Super Bowl champion Tom Brady next to parked Tesla Model 3 electric sedans in a Hertz garage.
Wedbush analyst Dan Ives said on CNBC's “Last Call” Thursday that the move to sell part of its Tesla fleet was a “black eye for Hertz” from a marketing and rollout perspective.
Part of Hertz's original thesis for investing in electric vehicles is that customers would like to rent them for a variety of reasons, such as trying it out for the first time, avoiding high gas prices or opting for a more environmentally friendly rental car.
Scherr said this type of experimentation is underway, but “not at a level of demand that warrants us maintaining a fleet of this size at this point.” Tesla's recent decision to reduce the price of its vehicles also influenced Hertz's decision, given the impact on depreciation, Scherr added.
Hertz had previously set a goal of making a quarter of its fleet electric vehicles by the end of 2024. Scherr said this course is instead about financial performance and operational integrity.
“A smart organization is one that is agile, adapts, removes distractions – financial and operational – and moves on,” Scherr said.