If we are selling Aehr, should we sell Tesla/Rivian/etc?

From CNN Business today:

CNN — Hertz is selling 20,000 electric vehicles to buy gasoline cars instead

Hertz, which has made a big push into electric vehicles in recent years, has decided it’s time to cut back. The company will sell off a third of its electric fleet, totaling roughly 20,000 vehicles, and use the money they bring to purchase more gasoline powered vehicles.

Electric vehicles have been hurting Hertz’s financials, executives have said, because, despite costing less to maintain, they have higher damage-repair costs and, also, higher depreciation.

“Collision and damage repairs on an EV can often run about twice that associated with a comparable combustion engine vehicle,” Hertz CEO Stephen Scherr said in a recent analyst call.

And EV price declines in the new car market have pushed down the resale value of Hertz’s used EV rental cars.

“The 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 a salvage creates a larger loss and, therefore, greater burden,” Scherr said.

Simply put, people are generally willing to pay a certain amount less for a used car than for a new one. As the price of new car goes down, that also pushes down what people are willing to pay to buy a used one.

Hertz expects to take a loss of about $245 million due to depreciation on the EVs, an average of about $12,250, per vehicle the company said in an SEC filing.

While Hertz isn’t directly pointing a finger, it appears that Tesla has been largely to blame.

Tesla makes up about 80% of Hertz’s EV fleet, and, altogether, EVs make up about 11% of Hertz’s total rental fleet. Tesla has been aggressively cutting its vehicle prices leading other automakers to do the same for their electric vehicles. When automakers reduce the prices of new vehicles, that pushes down the value of those models in the used car market, causing rapid depreciation.

For rental car companies like Hertz, which sell lots of vehicles in the used car market, depreciation has a big impact on their business, and is a major factor when deciding which cars to have in their fleets.

Being a relatively new company, Tesla doesn’t have as many replacement parts at hand and trained repair technicians that other car companies have, Hertz executives have said, making it costly and time-consuming to get repairs.

Remember, in the likes of GM and other [automakers], there’s decades of establishment of a broad national parts supply network’” Hertz CEO Stephen Scherr said in a recent analyst call. “There’s an aftermarket of parts that is there, that is less mature, obviously, in the context of Tesla.”

Besides costing more to repair when they’re damaged in a crash, Scherr also said, EVs are also getting in more crashes. Again, Teslas, which make up 80% of Hertz’s EV rental fleet, are mostly the problem in both these areas, he has said.

“Our work with Tesla is to look at the performance of the car, so as to lower the risk of incidence of damage,” he said, **“**and we’re in very direct engagement with them on parts procurement and labor and the like.”

Hertz sells its used vehicles at auctions as well as directly to customers on its Hertz Car Sales website.

23 Likes

I don’t know about higher damage-repair costs but the depreciation issue is not as simple as stated. Hertz got into EVs at the height of the frenzy when Tesla was raising prices and second hand Teslas were selling above new prices. Hertz got no fleet discount which it gets with ICE cars. Once Covid abated and competition started Tesla cut prices which crashed the used car market. In the traditional rental car model they figure in the resale value and this particular pricing episode they got bushwhacked.

Note the date, NOV 2, 2021

Tesla CEO Elon Musk denies there’s a contract with Hertz and says the rental giant will pay full price for cars. Hertz says it has an ‘initial order’ and has already started taking delivery of Teslas.

https://www.caranddriver.com/news/a38052601/hertz-buying-100000-tesla-rental-evs/

Denny Schlesinger

The old saying goes: “**Pioneers take the arrows, settlers take the land.

This is the reason I keep talking about “Crossing the Chasm” when investing in new technologies

18 Likes

This cut in the resale value really is a great example of unintended consequences. I would presume that current owners of Teslas bought at much higher prices than they are selling at now, will be shocked at the low resale value of their cars, due to Tesla cutting the prices of new Teslas.

Saul

25 Likes

I bought one of the first Taycans (Porsche’s EV) in 2020. A brilliant car, except when trying to take a trip of over 250 miles. Couple that with some unusual hiccups with software, charging and the vehicle going dead at the most inopportune time and I became more skeptical even though I enjoyed never visiting a gas station around town - I had a 240volt charger in my garage and solar panels on the roof. Around June, I started to see used EV prices plummet - sometimes 5k/month on a car that stickered over $175k. I bailed at the end of July at $90k for a 3 year old car with 12k miles on it. Prices have fallen another 15-20k since.

24 Likes