In late 2021, Hertz, the car rental juggernaut, at the time staggering from bankruptcy and pandemic shocks, announced a bold move. A move to acquire a staggering 100,000 Teslas. This move didn’t just make headlines; it sent Elon Musk’s electric-vehicle maker, Tesla, into the stratosphere, swelling its market cap beyond the $1 trillion mark for the first time. Hertz wasn’t left out of the joyride, as its market value also saw a significant surge. To add more color to the spectacle, NFL star, Tom Brady, was hired to showcase Hertz’s new fleet of Teslas.
Interim CEO, Mark Fields, was quoted saying, “How do we democratize access to electric vehicles? That’s a very important part of our strategy,” adding that “Tesla is the only manufacturer that can produce EVs at scale.” What seemed like a stroke of genius at the time, however, quickly turned into a costly misstep.
Hertz, rather than leveraging its size and buying power to negotiate hefty discounts often enjoyed by car-rental giants, paid close to list prices for the Teslas. Regrettably, this decision would soon come back to haunt them.
The Price Slash That Sparked A Domino Effect
Last year, Musk’s EV maker slashed prices across its lineup in a bid to boost sales. This move, while welcomed by potential buyers, drew the ire of customers who had recently purchased a Tesla at a higher price. Worse still, it severely dented the resale value of Hertz’s used EVs.
In January, Hertz, grappling with the depreciating value of its EVs, weak demand, and costly repairs, announced that it was offloading 20,000 electric vehicles. This decision came with a painful $245 million hit, plunging Hertz into its steepest quarterly loss since the pandemic.
A Change of Guard Amid Turmoil
Former CEO, Stephen Scherr, stated that “The elevated costs associated with EVs persisted,” adding that “Efforts to wrestle it down proved to be more challenging.” Following this debacle, Scherr was replaced by Gil West, the former COO of General Motors’ Cruise robotaxi unit. Despite the Tesla misadventure, under Scherr’s leadership, Hertz continued its focus on EVs, placing substantial orders with GM and Polestar.
This unfortunate series of events was the climax of a tumultuous period for Hertz, which witnessed billionaire activist investor, Carl Icahn, offloading his substantial stake in the car-rental company in 2020, shortly after its bankruptcy.
The Rollercoaster Ride Continues
Back in 2014, Icahn had started acquiring his stake in Hertz, which was then in dire straits. He saw in Hertz “a great brand” that he hoped would “return to its former glory.” To this end, three of his allies soon had board seats while the hunt for a CEO kicked off.
However, after selling his stake, Icahn confessed, “Yesterday I sold my equity position at a significant loss, but this does not mean that I don’t continue to have faith in the future of Hertz.”
Fast forward to 2021, the company announced its decision to buy Teslas. Now, with yet another CEO at the helm, Hertz is once again tasked with the herculean task of turning things around.
As per a report by Bloomberg, Hertz’s Tesla mishap is a cautionary tale for other companies looking to make a splash in the EV market. They would do well to remember that while EVs promise a greener future, they come with a hefty price tag and their own unique set of challenges.
