Slide 1: Introduction.
This chapter develops the failed case of the electrification of the Hertz vehicle rental company, what were the reasons, and the consequences of inappropriate planning of the change to the electric vehicle.
Slide 2: Hertz Electrification Goals.
In 2021 Hertz announced a major effort to electrify its rental vehicle fleet.
Led by a massive purchase of 100,000 Tesla Model 3 vehicles, in addition to an order for electric vehicles from General Motors and Polestar, with the main goal of becoming the vehicle rental company with one of the largest fleets of electric vehicles in the world.
A part of Tesla's fleet is destined for Uber's electric fleet.
Hertz and Polestar reached an agreement in 2022 for the acquisition of 65,000 units of the Polestar 2 over the next five years, for a total amount of 3,000 million euros.
Hertz's goal was to have 25% of the fleet made up of electric vehicles by the end of 2024.
Hertz's turnover in 2023 reached 9,371 million dollars (8,718 million euros).
7.9% more than the 8,685 million dollars (8,079 million euros) that it received in the previous fiscal year 2022.
It had a profit of 616 million dollars (about 573 million euros at the current exchange rate) in 2023, which meant reducing by 70% the record profits of 2,059 million dollars (1,915.9 million euros) for fiscal year 2022.
In the fourth quarter of 2023, Hertz had net losses of $348 million (€323.7 million).
Compared to the profits of 116 million dollars (107.9 million euros) registered in the last three months of 2022.
In 2023 it earned more than in 2022, but its profits were lower due to the electric vehicles in the fleet.
Hertz has assured that it will take the electrification strategy slowly, causing the sale of a portion of the electric vehicles in the fleet.
Slide 3: Causes.
The causes of inappropriate fleet electrification management are developed below.
An incorrect planned cost of ownership (TCO).
Hertz calculated the cost of ownership (TCO) lower than reality, due to the fact that the residual value of the vehicle has decreased, and the higher expected operating costs such as maintenance, breakdowns, etc. of the electric vehicle.
This has meant that the expected profitability is not achieved or there are direct losses due to the electric fleet.
Residual value lower than expected.
Tesla's residual value decreased mainly due to the decline in the prices of new Tesla vehicles, causing a decrease in the second-hand price of Tesla.
Tesla does not offer specific agreements to rental companies.
Hertz acquired the vehicles as property, and since it does not have a repurchase price agreed with Tesla, it has to assume the price drops in the residual value of the vehicle.
Currently this strategy is very risky due to variations in second-hand market prices for electric vehicles.
High repair costs.
Electric vehicles have higher repair costs than a diesel or gasoline vehicle.
And if the battery has to be repaired or replaced, the cost skyrockets.
The high cost of its electric vehicle rental services is associated with damage and collisions. Given the higher price of insurance, and considering that repair times are notoriously long and expensive, operating costs are high.
Electric vehicles have suffered more damage from users than expected.
Carpooling and ridesharing drivers have been breaking down EVs at a faster rate than expected, leading to more EVs being moved into their regular rental fleet, causing an oversupply that has reduced revenue daily vehicle.
Something that has precisely caused more visits to workshops to carry out more expensive repairs.
Low demand for electric vehicles.
Electric rental vehicles have low customer demand, because they are not prepared to use it, or simply do not want to use it.
One strategy was to assign electric vehicles to customers who had not requested them. This phenomenon even has a name, 'surprise electric' (surprise EV, in English).
For the user it means their first experience with an electric vehicle. The problem is not the vehicle itself, but everything that comes with traveling with an electric vehicle and everything that the unsuspecting customer is not prepared for.
From autonomy on the road, which requires recharging every few hours, depending on the route and vehicle, to how to pay at that charging point, everything will be a negative experience for those who are not prepared.
Lack of information is also key to the failure of electric rental vehicles.
It is important to note that both Hertz and other vehicle rental companies have failed to address the experience and education required to drive an electric vehicle.
It is not difficult to find customers who have rented an electric vehicle from Hertz, and have faced poor service. They have not received information about their operation, or clear guidelines on how and where to charge them.
It must be taken into account that these vehicles are sometimes rented to travel many kilometers, even for several days, and that the client has to be responsible for recharging them.
According to some testimonies, in addition, they are not always delivered fully loaded, which makes the driving experience even more difficult. The customer needs to be able to use the vehicle at the time it is delivered, because they pay for the time they have it in their possession and do not want to wait for it to recharge before starting to drive.
At this point, the pedagogy about electric vehicles is important and the logistics of companies in terms of delivering fully charged vehicles, and explaining to their customers where, when and how they should recharge is basic and it seems, is not being taken care of.
Slide 4: Tesla price drop.
Shortly after Hertz announced the purchase agreement with Tesla, the manufacturer began a significant price reduction.
Which, together with the US Government's $7,500 tax incentive, resulted in the Model 3 and Model Y being considerably more affordable.
The price was then in the range of 30,000 and 40,000 dollars respectively.
Which was a benefit for individual buyers, but a detriment for fleet companies, since the resale value was considerably reduced, ruining the economic TCO calculations made at the time of making the investment.
Although there are other manufacturers that have reduced their prices, none have done so by as significant a percentage as Tesla.
Again, a situation that seems to be specific to Tesla rather than a general problem with electric vehicles.
In fact, another of the large rental companies such as Sixt, aware of this, still intends to electrify 90% of its rental fleet, although it is distancing itself from Tesla for reasons similar to those faced by Hertz.
It is important to mention here that although the majority of Hertz's EV fleet was, or is, made up of Tesla, it also acquired a significant number of Polestar 2.
Slide 5: Tesla second-hand market prices I.
In the United States, the price reduction that Tesla has applied has been noticed in the second-hand market.
Which reflects a considerable drop in prices.
Tesla has dominated the electric vehicle market in recent years, allowing for a significant number of used units for sale. In addition, it has been shown that its batteries hold up well over time.
In recent years, this secondary market became uncontrolled.
Tesla was in such high demand that long delivery times caused a second-hand Tesla Model Y to sell for more money than a new one.
However, prices began to fall, and this trend continued until, finally, Tesla second-hand market prices collapsed as the manufacturer applied the largest discounts in its history.
The data show a spectacular drop.
According to data from CarGurus, a research website based in Cambridge, Massachusetts, which has been compiled by Twitter user Charlie Bilello, prices of used Teslas in the US have dropped by $18,000.
At the same time, the entire second-hand market fell by 2%, but very far from the levels set by Tesla: 8%. The effect is much pronounced during a 90-day period: in that period, the average price in the general market fell by 5.5%, while that of Tesla in particular reached 17.7%.
Although these prices correspond to the particularities of the American market, in which there is a greater abundance of units than in the rest of the world, it is not difficult to establish a parallel with the rest of the world markets and, specifically, with the European market.
Slide 6: Tesla second-hand market prices II.
ISeeCars has carried out a study of the fall in prices of second-hand vehicles in the United States.
It has studied the price of more than 1.8 million used cars between 1 and 5 years old sold in February 2023 and February 2024, including electric vehicles and fossil uels.
Electric cars are leading the decline in prices of used vehicles.
The price of cars, in general, has fallen by 3.6% in 2023, while that of hybrids has fallen by 6.5% and that of electric cars by 31.8%.
Seven of the top 10 are fully electric.
The latter is easier to understand by looking at the table of the ten used cars that have lost the most value between February 2023 and February 2024.
Older electric vehicles, such as the Chevrolet Bolt and Nissan LEAF, lost the most value, but three of the four Tesla models were also among the top ten cars that lost value.
Teslas depreciate 28.9% in one year.
Tesla cars cost $36,514 in the United States and after a year they depreciate by $14,808.
Slide 7: Electric vehicle depreciation.
Electric vehicles lose almost half their value just three years after their first registration.
According to the latest study carried out by GANVAM, National Association of Motor Vehicle, Repair and Spare Parts Sellers, and the German appraisal company DAT, an official reference in sales, financial, insurance and public administration channels.
GANVAM-DAT have taken into account for their study the data on the evolution of used vehicle values and sales prices from professionals to individuals for the different engines: gasoline, diesel, hybrids, plug-in hybrids and 100% electric.
Taking into consideration passenger cars and SUVs that are 36 months old and have the following mileage: 60,000 km for gasoline, hybrids, plug-in hybrids and 100% electric, and 90,000 km for diesel.
The rest of the engines in the used vehicle market are not as affected by factors such as the evolution of technology.
Well, for example, hybrid vehicles retain 66.5% of their value in the same period of time. However, the kings of second-hand vehicles continue to be gasoline vehicles.
Rapid evolution in battery technology has led to a type of accelerated obsolescence of older electric vehicles.
Just three or four years ago, a new electric vehicle had an acceptable range for an average daily trip, but current models offer significantly more km of travel on a single charge.
This improvement has generated a slowdown in the sale of older electric vehicles.
Since consumers flee from the stressful anxiety about autonomy, and the limitations it entails. As a result, sellers are forced to reduce prices on these older models in order to compete in a market dominated by more advanced and efficient technology.
In addition to the rapid evolution of electric vehicles, behind these figures there is a sum of very different factors that end up affecting their depreciation: from the fall in demand in large markets such as the US or China, to the ending of purchase aid in countries like Germany, passing through the loss of weight of electric vehicles in the Nordic markets, which also have to do with this differential.
As an example, the Volkswagen Golf, which has been the best-selling second-hand model for four years: although the differences in value are narrowing slightly due to the pressure exerted by demand, the three-year-old gasoline version maintains 68% of its value after 60,000 kilometers, ten points more than its battery-powered equivalent.
To determine these essential values when setting the resale price, or the fees of financing or renting, for example, not only age or mileage are taken into account.
Demand, price and batteries: three factors to take into account.
In a context of global electrification like the one we are going through, which requires incorporating new variables into the equation such as battery stress, charging type and time, or telematics to determine both the current and future state of vehicles, there are many factors. that affect the depreciation of electric vehicles, says the report.
Slide 8: Electric vehicle maintenance.
Total repair costs are 29% higher for electric vehicles.
Than vehicles with internal combustion engines.
According to a study by the American company Solera, which produces and markets vehicle repair cost calculation software for workshops and professionals.
It has analyzed up to 92,000 repair estimates made in a total of 20 countries in the period between January 2021 and August 2023.
Specific spare parts for electric vehicles are up to 48% more expensive.
Than the equivalents for vehicles with combustion engines.
But it is not the only difference against electric vehicles: in them, up to 24% of the invoice price is due to parts that affect the electric drive system.
The weight of electric vehicles affects their maintenance cost.
As demonstrated by the maintenance budgets of an electric Hyundai Kona with those of its counterpart with a combustion engine.
According to the scheduled maintenance for the electric Hyundai Kona, the airbags of the electric version must be replaced 8% more frequently; Curiously, other parts such as shock absorbers and different body reinforcements also have to be replaced before in electric vehicles.
This is attributable to weight, but, according to Solera, the greater weight of electric vehicles can also explain the greater frequency of airbag system repairs.
And Solera reveals another cause that directly affects the cost of repair and maintenance of these electric vehicles. It is true that these vehicles tend to have fewer accidents in general than vehicles with a combustion engine, but these accidents are more serious and involve a greater number of parts to be repaired.
Electric vehicles require more labor.
American repair cost calculation provider Mitchell produces a quarterly barometer of the repair costs of electric vehicles versus those with combustion engines.
In the last of these barometers, which yes, includes only countries like the US and Canada, where Tesla dominates the electric vehicle market, not in vain, vehicles of this brand account for 74.5% of the electrical repairs analyzed in the report.
Mitchell points out that, in these vehicles, the cost of labor represents 49.6% of the final invoice, compared to the 41% that this concept represents in an equivalent thermal vehicle.
This translates, on average, to six more hours of labor, which is spent, in short, securing the high-voltage circuit or removing the battery if necessary.
On the other hand, this company also points out that, in electric vehicles, the availability of non-original manufacturer parts is lower, which makes their bill more expensive.
Thus, during a typical repair, electric vehicles require 88.8% original parts, compared to 67.4% for gasoline vehicles. Furthermore, only 13.4% of electrical parts are repaired, compared to 16.3% reconditioned in those of thermal vehicles.
In this way, Mitchell calculates that the average additional cost of repairs for electric vehicles is $269 (245 euros) more than the average repair cost for thermal vehicles.
The battery.
Insurers do not repair your battery when it is damaged, but rather replace it with a new one, with the cost that this entails: in the case of Teslas in particular, the repairs must be carried out by the brand, and it is much more expensive than the independent workshops.
With this situation, it is logical that rental companies like Hertz consider assuming this extra cost in the repair of electric vehicles. A cost that, of course, also worries insurers.
In fact, the Association of German Insurers (GDV, Gesamtverband der Versicherer) agrees with Solera in pointing out that, on average, the repair costs of electric vehicles are between 30% and 35% higher than those of equivalent thermal vehicles, and remembering, that these vehicles have a 5% to 10% lower accident rate.
But the GDV emphasized, in a study published in October 2023. According to this association, repair costs skyrocket as soon as the operation affects the battery.
Slide 9: Leasing and Renting Companies.
In three years, an electric vehicle costs on average half of what was paid for it.
Electric vehicles lose their value much faster than a gasoline, hybrid or diesel vehicle.
Automakers have started compensating leasing companies for the loss in value of used electric vehicles.
Ayvens, the largest multi-brand leasing company, has already received compensation for the drop in electric vehicle prices.
Some finance companies are already talking about asking to buy back their vehicles. In any case, there are brands that are paying them to compensate for the loss in value of the vehicles.
The business model of leasing, understood in Europe as rent with an option to purchase, and renting, pure rental, two long-term leasing formulas, is based on the residual value of the vehicles, that is, the value at which they will be possible to sell them at the expiration of the contract.
The monthly fees paid by the client also allow depreciation to be covered. If the value falls more than expected, as has recently happened with electric vehicles, leasing and renting companies lose money on those vehicles.
It is a risk that the rental company runs. This is usually a bank or a financial subsidiary of a manufacturer, such as Leasys in the case of Stellantis or Alphabet in the case of BMW. The rent is calculated on the differential between the new sale price and the residual value, in the second-hand market. And they run into a problem when that residual value suddenly drops.
Renting and leasing contracts usually last an average of four years, and that is a problem for these financial companies.
It means that until the end of 2023, when the price war began, they have paid a high price for electric vehicles. A price that has dropped significantly in recent months.
This, together with a high depreciation inherent in electric vehicles due to low demand, and fear about the state of the battery, makes it difficult for them to sell the vehicles at a price high enough to fit them in the second-hand market.
For example, in Spain, a Tesla Model 3 started in 2022 from 42,995 euros, when today it costs just under 40,000 euros, and it is also an updated version. The leasing company that paid almost 43,000 euros for it will have to sell it at a very low price if it wants to sell it. And that is with a vehicle for which there is demand.
The finance companies that have rented, for the CUPRA Born 231 HP with a 77 kWh battery that cost just over 45,000 euros at the beginning of 2023, and which now costs 38,160 euros, are going to have a difficult time recovering the investment.
From one day to the next, the value of that CUPRA Born has dropped by 7,000 euros.
In a market in which more and more customers, individuals and companies, make a choice for a non-owned vehicle for peace of mind and cost control, maintenance is included in the fee, vehicle brands have seen renting as a way to make up a high sales price or a price increase, since everything is diluted in the monthly fee.
In fact, according to a study by the CAR Institute, although focused on Germany, to recover the drop in the value of second-hand vehicles, leasing prices for electric vehicles have already begun to rise to exceed those of combustion vehicles. And that makes them less attractive when it comes to opting for a new vehicle.
Slide 10: Leasing and Renting Companies-Sixt.
Sixt's goal is to electrify between 70% and 90% of its European fleet by 2030.
With a wide range of manufacturers and models. To this end, the German company is setting up its own charging infrastructure while its offices and branches will be carbon neutral by the end of 2023.
In 2022 Sixt announced a major order for 100,000 electric vehicles from BYD for its European fleet.
A very important agreement that helps both companies achieve their promises and future goals.
The contract is valid for six years. BYD has until 2028 to deliver the agreed 100,000 units, and the agreement can be extended at any time with additional deliveries.
In 2024 SIXT and Stellantis reached one of the most important agreements in the industry.
The vehicle rental company wants to expand its offer in Europe and the United States, and to do so, it has partnered with the French conglomerate. The quantity is 250,000 vehicles. A huge order that contemplates different mechanical options, including electric vehicles and a wide range of brands.
Like any other rent-a-car company, SIXT negotiates vehicle prices with the aim of achieving the greatest possible discount. The cheaper each unit is, the faster you will be able to make it profitable.
Once the vehicle in question has exhausted its useful life as a rental vehicle, the company resells it to the manufacturer (buy-back).
Under previously agreed conditions, giving a second life to the product. At the end of the day, all parties in the chain win in the process: the manufacturer, the rental company and the customers.
Slide 11: Consequences: Tesla.
Since April, Gil West takes over from Stephen Scherr as CEO.
Electrification of Hertz's fleet has stopped or slowed down.
Hertz has already begun a process by which it intends to sell 20,000 of its Teslas.
The income generated from these sales will be used to meet the demand for internal combustion vehicles available for rental.
Hertz is starting to sell some of its Tesla Model 3 and does so at fairly cheap prices in the United States.
Some vehicles sold for as little as $17,700. In the United States, there is a $4,000 tax credit for used electric vehicles.
Teslas in principle would not be eligible for it, since the price limit is $25,000 in the case of the second-hand market. However, at that price, many of those Model 3s would qualify.
The reason those Model 3s appear so cheap is because of their high mileage over a short period of time.
And the fact that people are much less careful with rental vehicles. Therefore, they are usually a little beat up.
Slide 12: Consequences. Polestar.
In 2022 Polestar signed the sale of 65,000 electric vehicles to Hertz over the next two years, 2022 and 2023.
Although the first purchases have been made successfully, only 20,000 sales of the 65,000 planned have been completed.
In 2024 Hertz contacted Polestar to stop the agreement.
The agreement has been suspended, not annulled, which in turn is positive for Hertz, since it will not have to pay penalties for breaking the contract.
Maintaining the long-term agreement until 2025, while not accelerating deliveries to Hertz in 2024.
The Polestar 2 neither fails nor increases repair costs at Hertz.
Unlike Tesla, Polestar does not operate in the mass segment, but in the premium segment and is therefore more interested in margins than volume.
Hertz will continue to receive units of the Polestar 2 and other models of the firm in the coming months to expand its offer of electric vehicles both in Europe and in other countries, highlighting that the sale of Hertz electric vehicles only affects the North American market.
Polestar's main fear was that a large number of vehicles would come onto the second-hand market with too attractive a price.
Hertz has confirmed that it will not retire any of the Polestar units from the fleet in 2024, nor does it intend to do so.
Something that could cause not only a depreciation of the vehicles but also a loss of Polestar's image value.
Slide 13: Measures to take.
Calculate realistic cost of ownership (TCO).
A realistic TCO must be planned and calculated.
We must know if electric vehicles are viable in our fleet from an economic point of view, if they are profitable. If they are not economically viable, it is recommended not to electrify the fleet until it is possible.
It may happen that we have to decide to electrify the fleet at higher costs than the current fleet of fossil fuel vehicles, but with lower polluting emissions.
To calculate the TCO, the acquisition cost or renting fees are known, and the cost of sale of the vehicle or residual value can vary as previously developed.
Operating costs such as energy consumption, tires, etc. They can be estimated, but always taking into account that they are higher than the vehicle manufacturer's data or the WLTP cycle.
As previously developed, maintenance and repair costs are higher in the reality.
In the fleet of electric vehicles, the entire battery will probably have to be changed in several vehicles. Since it is not known which vehicles, an approximate number of batteries to be changed can be calculated, and a total TCO is calculated for all electric vehicles, or the the total cost of changing the battery is distributed among all vehicles proportionally to the value of the vehicle.
Acquire vehicles on rent or with a repurchase option.
The depreciation of an electric vehicle is very high for various reasons such as the technology developing very quickly, the ranges over time are greater, the prices of new vehicles are lower, etc.
To avoid variability in the sale price of the vehicle or the residual value, if we purchase through renting this risk is eliminated, because we know the fee before purchasing the vehicle, and it is returned at the end of the contract.
If the vehicle is acquired as property, it is advisable to include a repurchase option at an agreed price, or compensation for the loss of value of the vehicle.
If we acquire the vehicle as property as Hertz did, there is a risk of a decrease in the sale or residual price of the vehicle, which can cause the vehicle to be unprofitable, and even cause losses.
Educate customers and users about electric vehicles.
Users and customers of electric vehicles must be educated about their use.
How to recharge it, when to recharge it, the technology, how to drive, what to do in case of a battery fire, available charging points, delivering the vehicle with a charged battery, etc.
As well as the environmental advantages of electric vehicles.
Acquire second-hand electric vehicles.
The drop in prices of second-hand electric vehicles can be an opportunity for those fleets that want to electrify but do not have a large budget to do so.
You can purchase electric vehicles with few kilometers and in good condition, and electrify the fleet. The most important thing is to know the status of the battery through a report.
Slide 14: Thank you for your attention.
In this chapter, the failed case of the electrification of the Hertz vehicle rental company has been developed, and the measures to be adopted to avoid it, see you soon.
