Hertz Global, one of the largest rental car companies, has announced a shift in its plans to add battery electric vehicles (EVs) to its fleet. The company cited Tesla's price cuts and higher-than-expected repair costs for EVs as the reasons behind slowing down its pace of electrification. Hertz had initially projected to have 100,000 Tesla vehicles in its fleet by the end of 2022 but now falls far short of that goal with only around 35,000 Teslas currently in its fleet.

During the company's third-quarter earnings call, Hertz executives confirmed that the repair costs for EVs exceeded their expectations, impacting the company's margins. Hertz CEO, Stephen Scherr, stated on Thursday, "Our direct operating expenses remained controlled in the quarter as they grew with transaction volume. On a unit basis, we achieved productivity gains across most categories of auto. The exception remained vehicle damage costs, particularly those on our EVs."

A major factor influencing Hertz's decision to slow down its electrification plans is the decline in the resale value of EVs caused by Tesla's price cuts. The resale value of the majority of electric cars in Hertz's fleet has been reduced by about one-third, placing a burden on the company's finances. Scherr explained, "MSRP declines in EVs over the course of 2023, driven primarily by Tesla, have driven the fair market value of our EVs lower as compared to last year, such that as salvage creates a larger loss and therefore greater burden."

The news of Hertz's decision to pump the brakes on its electrification plans had a negative impact on the company's stock, with shares closing down by around 10% on Thursday at $9.04. Tesla's shares also dipped about 3% to close at $205.76.

Furthermore, Hertz revealed that approximately 80% of its battery electric cars are currently Teslas, constituting about 11% of its entire fleet. Although Hertz remains committed to purchasing 100,000 cars from Tesla and 175,000 EVs from GM, the company no longer expects EVs to represent a quarter of its fleet by the end of 2024, as previously anticipated.

To address the challenges posed by high repair costs and depreciation of EVs, Hertz is closely working with Tesla to reduce the risk of damage incidents and improve the availability and affordability of parts and labor. Scherr stated, "Our focus and our work with Tesla is to look at the performance of the car so as to lower the risk of incidents of damage. And we're in very direct engagement with them on parts procurement and labor and the like. As Hertz buys up more EVs from GM and other automakers down the line, the company expects those electric vehicles to have a lower incidence of damage and a lower cost of parts and labor."

Hertz's decision to slow its electrification plans demonstrates the complexities and challenges associated with incorporating EVs into large rental car fleets. As the company looks to diversify its EV offerings and improve profitability, it hopes to leverage the established national parts supply networks of traditional automakers like GM to overcome some of the obstacles faced with Tesla.

In conclusion, Hertz's decision to scale back on its EV plans is driven by the combination of Tesla's price cuts impacting the resale value of its EVs and the higher-than-anticipated repair costs. The company's aim to have 100,000 Teslas in its fleet by the end of 2022 remains unattained, but Hertz remains committed to its long-term commitment to electrification.