What Impact Does 100,000 Teslas Bring to the Hertz Rental Car Fleet?
Since electric vehicles (EVs) were first introduced to the market, one of the most significant hurdles to their adoption has been the high upfront cost. Even accounting for government support via rebates, subsidies, and tax breaks that are intended to bring those costs down, many models of EVs remain simply out of reach of many households. Worse, though, as that the lack of affordability of EVs means many households haven’t even had a chance to test drive or consider an EV and how it would fit into their lives. Without such exposure to EVs on the road, the preconceived notions that some would-be drivers have are allowed to persist regardless of their validity: are EVs not as powerful? Is their acceleration hampered? How inconvenient is charging? How real is range anxiety once on the road?
The failure of the EV industry to tackle these pain points, especially amid advancements in EV technology that’s already solved for these potential problems, simply extends the length of time before more drives flock to electrify their personal transport. However, a new avenue may have just opened to increase common exposure to EVs in the announcement from Hertz, one of the nation’s largest and most prominent rental car agencies, that they would be putting in the largest single order Tesla has ever received: 100,000 units of the Tesla Model 3.
This news made immediate headlines, and the implications for the upcoming penetration on the EV market were great: Will the availability of Teslas to rent bring more potential EV drivers into the fold? Will it allow them to test out an electric car and consider buying? Will it quell the fears of not having a charging station at every turn?
Background of the Order
The news of this mass purchase from Hertz took the EV sector by storm, no doubt helped by the fact that the promotional face of the announcement was Super Bowl Champion Tom Brady. The details of the arrangement were that Hertz purchased 100,000 Tesla Model 3s to be delivered by the end of 2022, with the first of those Teslas being available to renters in several U.S. and European markets (including in Hawaii, California, and Texas) by November 2021. The total number of markets for these Tesla rentals is to reach 65 by the end of 2022 and 100 just one year later. Those customers who rent Teslas from Hertz can even get an upgraded premium rental experience that includes more education on EVs and even an expedited rental process.
Another interesting note about the deal between Tesla and Hertz is that a portion of the Teslas are going to be made available to Uber drivers in the select cities of Los Angeles, San Francisco, San Diego, and Washington DC (to be extended nationwide later). The idea behind this part of the news is that Uber drivers will be given the ability to rent the Teslas for about $300 per week (a price which includes maintenance and insurance). Note that a similar, but unrelated, program is being rolled out in London as well.
The CEO of Hertz couldn’t help but celebrate this move, noting that “electric vehicles are now mainstream, and we’ve only just begun to see the rising global demand and interest. The new Hertz is going to lead the way as a mobility company, starting with the largest EV rental fleet in North America and a commitment to grow our EV fleet and provide the best rental and recharging experience for leisure and business customers around the world.”
What it Means for the EV Industry
Even before an order this large, the EV transition had already tilted to being inevitable, with the only question remaining the speed of that transition. That said, a partnership like this could be a veritable shot in the arm to gaining more acceptance, more exposure, and more excitement in the EV space. And to be sure, 100,000 vehicles is a huge order for any single company, even one whose main business is fielding a fleet of cars: more than 20% of the Hertz vehicle fleet will be electric by the time this order is fulfilled (compared with just 3% of all global vehicles, for context).
So, while this news is no doubt landscape changing for Hertz as a company, what is the scale of the impact on the EV industry? Starting with Tesla, this order represents an undoubtedly notable sales day, to say the least, with the deal bringing in $4.2 billion in revenue and catapulting the company’s market evaluation by 12% to pass the unthinkable $1 trillion threshold.
But the real benefit goes deeper than that, as countless new drivers will be able to get behind the wheel of a Tesla that have never been able to do so before. But the experiences is even better and goes beyond just a test drive around the block from the dealership or in a neighbor’s EV. Instead, renting a Tesla offers drivers the ability to ‘live a day in the life’ of an EV driver: seeing firsthand the prevalence of EV chargers, feeling the reliability of the drive, and being able to quiet the ghost of range anxiety by seeing how accessible such drives are. Once customers complete their Tesla rentals, no doubt some portion of them will start real conversations about going electric with their personal vehicles (via Tesla or otherwise), customers that they wouldn’t have been willing to have otherwise. Reducing this barrier represents key to further EV penetration on the market.
Even the Uber portion of the Hertz Tesla fleet will be notable, as a driver who is leasing the same model 3 would be paying nearly as much to lease the Tesla as the rental opportunity, making it a great option for Uber drivers. And the more Ubers that are electric will only lead to more exposure, both through the drivers and the riders who will again have new reasons to learn about and consider EVs of their own.
How it Impacts the Energy Sector
Looking more bigger picture at how the Hertz deal will impact the energy space, as utilities and electricity increasingly getting intertwined with the transportation space in the new paradigm of the future, the reality is once again that the electric vehicle revolution was well under way before this Hertz deal. A new order for 100,000 Teslas is a huge data point, and one that is bigger than any other fleet commitment, but does it move the needle when looking at electrical demand?
Putting some figures behind this question, in the third quarter of 2021 Tesla sales reached a quarterly high of 240,000 units globally, meaning 100,000 units represents 40% of that record-high quarter for the EV industry leader. Looking just at U.S. EV sales (not just Tesla), 2020 saw a record high of over 240,000 all-electric vehicles sold over the course of the whole year, so once again this order from Hertz alone totals about 40% of annual U.S. EV sales. Since 2011, 1.1 million EVs have been sold in the U.S. so 100,000 is approaching 10% of that total. All that is to say, no matter how you slice it, this order does indeed represent a big jump. That said, it’s a jump that’s been a part of projections that look to see 10% of the U.S. new car market go electric by 2025 for annual sales by mid-decade of 6.9 million units.
So the Hertz order isn’t moving the needle on expected EV sales, but it a notable fast track of many of those sales. As Elon Musk has noted, the bottleneck behind Tesla sales has never been demand, it’s been supply constraints. So the Tesla purchases by Hertz are part of a trend that’s been happening, and they are a canary in the coal mine of the gasoline-powered transportation industry. Energy providers watching on should see it as validation of the trends, that this transition is speeding up, and they need to prepare accordingly.
As BrokerX has noted previously, though, the forward-looking utility companies and power providers have already shifted their mindset on this topic. Where once the pending transition to EVs was seen purely as a burden (how will we provide enough generation, no less transmission, to meet these great new increases in demand?), EVs are now being viewed as an opportunity: one for load shifting to address peak demand, one where EVs (especially fleets like from Hertz) can be seen as a source of mobile energy storage, and even an opportunity to act as a trusted energy advisor and create new opportunities for revenue streams and community engagement. A batch purchase like this one from Hertz simply helps move the needle for those energy companies to understand how that EV transition will be happening, identify key stakeholders to engage along the way (you bet the utilities serving the key Hertz service areas have already made those early phone calls to work out rate structures, charging infrastructure needs, and more), and help to fast track this transition to new opportunity.