Hertz plans to have “a considerable portion” of its fleet be electric by year’s end with Polestars and Tesla’s Model Y and Model 3. Implementing charging infrastructure may be the biggest hurdle, particularly on airports.  -  Photo:  Unsplash / Charlie Deets

Hertz plans to have “a considerable portion” of its fleet be electric by year’s end with Polestars and Tesla’s Model Y and Model 3. Implementing charging infrastructure may be the biggest hurdle, particularly on airports.

Photo: Unsplash / Charlie Deets

By many metrics, the first quarter of 2022 will go down as one of Hertz’s best quarters ever. To put it in perspective, Hertz’s $614 million in adjusted corporate EBITDA was its best performance in the first quarter since 2007.

Yet vehicle supply is still the biggest challenge in the industry and it’ll stay challenging well into 2023. In this environment, Hertz is embarking on the biggest initiative in car rental since the invention of consolidated rental facilities. That initiative, of course, is electrification.

Other major car rental companies have been renting EVs in small numbers and in pilot programs for years. Yet Hertz was the first to go public in a big way last year when it announced a 100,00-unit deal with Tesla — purportedly to fleet in the 2022 calendar year — and another deal for 50,000 Polestars over five years.

In Hertz’s first quarter conference call, CEO Stephen Scherr and CFO Kenny Cheung dug a deeper into Hertz plans to develop electrification and how it will change fleet dynamics for Hertz and, by extension, car rental. This call was Scherr’s first. While interim CEO Mark Fields may have set Hertz’s electrification initiative in motion, Scherr will be the one to execute it.

Scherr put into context Hertz’s EV efforts to date: Teslas are available in its daily rental fleet in 30 markets and are available to Uber drivers. Hertz expects to expand to 40 markets by year-end, with both the Model 3 and now Model Y.

“A considerable portion of our fleet will be electric by year end,” Scherr said on the call, though he didn’t specify exact numbers. Anecdotally, a recent passerby to LAX in Los Angeles saw about 100 Teslas in Hertz’s rental lot. It’s happening.

Efforts are underway to expand the charging footprint as well.

Planning infrastructure shouldn’t be overlooked, particularly on airports that must also coordinate with utilities to bring added power that will serve not only rental fleets, but also airport visitors and much larger electric vehicles that will serve airports’ “airside” operations. And it’s not as easy as stringing new cable.

Certainly, Hertz and the rest of the industry will also face challenges around the logistics of charging, particularly at airports with the need to turn cars quickly. (One solution: incentivizing renters to charge up on the road and bring the EV back with enough charge to turn it around quickly.)

While the actual number of EVs Hertz has fleeted may be vague, one thing is clear: Hertz is about to reap first-mover advantage in this new rental market of electric vehicles. What does that actually mean?

First, there’s room to grow EV rentals in the corporate space. Hertz achieved its impressive returns last quarter without the full benefit of normal corporate business, which is running at 63% of 2019 comparisons and 35% of international inbound pre-covid.

“The electric vehicle is turning out to be of great appeal to our corporate customer,” Scherr said. With EVs, “they’re satisfying their own ESG and carbon footprint objectives.”

Indeed, ESG (Environmental, Social, and Governance) has within two years become one of the major drivers of EV adoption in corporate fleets. Corporations may likely pay a premium to satisfy their mandates.

Turning to another sector of B2B — rentals to TNCs (transportation network companies). A significant percentage of Hertz’s Teslas are apportioned to rentals to Uber drivers. That business is seeing 80% utilization and driver waitlists, Scherr said.

Renting to TNCs isn’t new business for Hertz, and it had been good, steady business pre-pandemic. But let’s remember it’s still a small number of Teslas that are being pounced on by first-adopter Uber drivers. (Knowing the slim margins in the rideshare market, the jury is still out on whether it makes sense for Uber drivers’ bottom lines to rent a Tesla Model 3 or Y instead of a lower cost ICE sedan.)

Nonetheless, having the TNC, corporate, and consumer outlets to rent EVs allows multiple channels that ensure high utilization. As well, the dynamics of this type of B2B rental could translate to other fleet types, Scherr said. (When an adequate supply of Ford E-Transits becomes available, renting them to last-mile delivery companies is a no-brainer.)

On both the corporate and leisure sides, EVs are commanding higher prices while realizing lower maintenance costs and less downtime for routine maintenance. The fact that the Tesla Model 3 is a champion in the aftermarket eases the high initial cost.

Here’s why EVs matter in this highly restrictive supply market: With lower maintenance needs and costs, EVs are expected to be able to stay in fleet longer than traditional ICE vehicles. So, could a Tesla reasonably stay in fleet for 24 to even 36 months instead of 12? We’ll know in 24 to 36 months.

If that is the case, EVs — particularly Teslas — should enjoy an even better depreciation curve while still commanding a high daily rate.

Even bigger picture in terms of fleet, Hertz isn’t exclusive with Tesla and Polestar. Opening acquisitions to other EV makers further diversifies fleet and hedges against a particular automaker’s supply constraints, while lessening Hertz’s burden to churn vehicles.

Finally, while the car rental industry is enjoying record rental rates overall, everyone is looking to understand when the balloon will deflate. In that regard, Scherr said he believes EVs present “a pretty defensive floor” when it comes to pricing. “They are a scarce component of the fleet just on a relative basis,” he said. “Therefore, (our) ability to hold price, I think, is higher.”

Of course, first-mover advantage comes with the burden of blazing a trail without a tested game plan. As much of this is theoretical, we’ll have to wait to find out how Hertz works through these issues and then learn from them.

Originally posted on Auto Rental News

Author

Chris Brown
Chris Brown

Digital Editor of Automotive Fleet, Fleet Forward, Auto Rental News

As editor of Automotive Fleet (digital), Auto Rental News, Fleet Forward, and Business Fleet, Chris Brown covers all aspects of fleets, transportation, and mobility.

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As editor of Automotive Fleet (digital), Auto Rental News, Fleet Forward, and Business Fleet, Chris Brown covers all aspects of fleets, transportation, and mobility.

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