Hertz signs $4.2B 100,000 car order with Tesla

The order is around 10% of Tesla's current annual production. It will make Tesla's available to rent across Hertz US locations and some (unspecified) major European cities.

The announcement was good for Tesla's shares which jumped, pushing Tesla's market capitalisation over $1T for the first time. Joining Amazon, Apple, Facebook, Google (Alphabet) and Microsoft in the $1T+ club.

View gallery image

Hertz is also installing EV charging in all their locations, which should pave the way for moving more of their fleet to EVs. This could happen quite quickly as rental companies typically only keep their cars for 1-2 years / 30-40K miles.

Hertz launched an ad campaign with Tom Brady, of America football fame.

Why did they choose to go to EVs in general and Tesla specifically?

There are quite a few reasons that likely explain their decision:

Good publicity in general and promoting an increasing important green image.

Running costs will be almost zero - Tesla's have no scheduled service requirement and would be under warranty for anything unscheduled. This saves money directly in servicing costs and indirectly because utilisation is higher with no scheduled maintenance needed.

Depreciation will be low as Tesla's hold their value well. This is a major cost factor for rental companies as the $ of depreciation is far more important than the $ purchase price, since they keep the cars for so little time. If they lease the cars the low depreciation of course makes the lease cost lower.

The supercharger network would have been a big attraction since it makes it simple for renters and they can be confident they are always navigated by the car to a very fast and reliable charger.

View gallery image

Benefits for Tesla and EV adoption

Obviously and income and share price boast are great for Tesla. But there are some other benefits to them and EV adoption in general.

More exposure to EVs and Tesla specifically.

For people considering an EV / Tesla being able to rent gives more time to try out compared to a short test drive. It should also increase the size of the second-hand Tesla market from 2023 as Hertz starts selling on the fleet.

Downsides and risks

Tesla is already struggling with extended lead times and this can only make that worse, by adding 10% more volume to fulfil. Expect to see longer lead times. This should get offset in 2022 as the Giga-Texas and Giga-Berlin open and ramp up production.

Extra use of the Tesla Supercharger network could create queuing issues for Tesla owners. Tesla has committed to tribble the size of the supercharger network over the next two years, delivering on this commitment has become even more important.

Tesla has suffered from production and service quality issues. They seem to have got a lot better, but still far from perfect. It would be very damaging to Hertz business and Tesla reputation if they had significant issues.

What's next?

This likely represents the beginning of the rental car industry switching over to EVs. I expect to see announcements from more rental companies soon and for Hertz to expand their EV coverage. While Tesla has benefited from the first big step it's likely other EV manufacturers picking up major orders soon from both rental businesses and the adjacent taxi market. Indeed London's biggest taxi firm recently ordered 4,000 VW ID.4s: