36 votes

How Hertz’s bet on Teslas went horribly sideways

26 comments

  1. [8]
    skybrian
    Link
    From the article (archive): … …

    From the article (archive):

    Early in 2023, another warning light flashed. Delays due to repair were increasing across Hertz’s entire fleet, and collision costs were jumping, too, but initially neither Scherr nor anyone else could explain why. It wasn’t for at least another quarter that his team broke down the aggregate data and showed the board that the culprit in both cases were Teslas. With electric motors and drivetrains, Teslas were indeed cheaper to maintain than a traditional car, as Wagner and O’Hara predicted in their financial models. The problem was how often they crashed. Newbie Tesla drivers who weren’t used to the car’s instantaneous acceleration and immediate braking were running into obstacles or getting rear-ended, sometimes even before they left the rental lot. Hertz’s Teslas got into accidents four times more often than the company’s other vehicles. Unlike major automakers, Tesla doesn’t have an extensive network of franchised dealers to help with service and repair, leaving owners subject to the company’s availability and schedule. Some of Hertz’s Teslas were idled for extended periods as a result. “They couldn’t get parts, even simple things like an outside mirror,” says Alex Rojas, the business agent representing Hertz workers for Teamsters Local 222 in Salt Lake City. “They just sat there for weeks not getting rented and not making money.”

    When Hertz was able to get its Teslas fixed, the costs were exorbitant compared with those of repairing other makes. A radar assembly for the Autopilot driver-assist system can cost $1,500 to replace and as much as $3,000 to calibrate. Many Teslas had to be junked altogether, because a crash could result in a permanent misalignment of the body panels or because the risk of battery damage made them uninsurable. That, combined with the higher rate of accidents than on Hertz’s other vehicles, led to a spike in repair bills. In 2023, Hertz reported the cost of operating its vehicles was $5.5 billion, up 13% from the previous year and 39% from 2021, partly because of collision and damage.

    Then, late in the evening on Jan. 12, 2023, Tesla published a new price list on its website. There were discounts on every car in the lineup— Model Y crossovers were selling for $53,000, a drop of 20%. Scherr at the time planned to increase Hertz’s EV allotment from 10% of the fleet to 25% by the end of 2024. That implied buying tens of thousands more vehicles, whether Teslas, Polestars or Chevy Bolts. “I’m obviously a happier and a better buyer at a lower price point than not,” he said on an April 2023 conference call. The cuts would benefit his ride-hailing business, too. “Our EV fleet is the most affordable entry point for drivers to get into those electric vehicles and use them,” Scherr said.

    But what initially seemed like a boon exploded like a bomb. By October 2023, Musk, intent on defending Tesla’s share of an increasingly competitive EV market, had slashed prices multiple times. The warnings Wagner and O’Hara had brushed off were proving all too prescient. Musk’s price cuts forced Hertz to revalue all of its Teslas and played a major role in a tripling of Hertz’s depreciation costs to $2 billion last year.

    By piling into EVs as car prices were peaking, a fact visible at every showroom in the country, the two had made the most classic of Wall Street errors, buying high and selling low. In many respects, they’re no different from any of the hapless investors in Tesla, or Rivian Automotive, or Lucid Group, or Polestar, who are now licking their wounds as global EV demand slows and the prospects grow dimmer for full electrification of the auto industry.

    23 votes
    1. [7]
      gowestyoungman
      (edited )
      Link Parent
      In addition to the above, Hertz wasn't exactly operating efficiently. Their software was pretty glitchy: And they were inefficient at staffing: They also misjudged the average traveller's appetite...

      In addition to the above, Hertz wasn't exactly operating efficiently. Their software was pretty glitchy:

      As a result, too often travelers showed up to find that the cars they’d booked were unavailable. Sometimes the kludgy system erroneously showed cars as missing, resulting in hundreds of innocent Hertz customers getting arrested on charges of stealing rentals they’d actually returned. (In 2022, Hertz paid $168 million to settle 364 of those claims.)

      And they were inefficient at staffing:

      Avis, which operates a fleet 25% bigger than Hertz’s and generates 28% more revenue, has 2,500 fewer employees.

      They also misjudged the average traveller's appetite for anything other than a car they were familiar with:

      Unlike EV owners comfortable with the idea of charging a car battery at home and on the road, business travelers and vacationers suffered from range anxiety and didn’t want the hassle or worry of having to find a charger in the wild. Rudy Gardner, who as president of Teamsters Local 922 represents Hertz workers at Washington, DC’s Dulles and Reagan National airports, says travelers after a long flight would arrive at those Hertz locations to find that Teslas were the only vehicles available. “People didn’t want to charge them,” he says. “At the end of the night that’s all we had left, so they’d go to Avis.”

      They also underestimated how many charging stations they would need for their own cars:

      While the company had installed its own charging network as part of the electrification push that started in 2021, some older airports, such as New Jersey’s Newark, don’t get enough power from the electricity grid or lack the infrastructure to support the number of so-called Superchargers that Hertz needed to get EVs back on the road in a half-hour or less. Once a Tesla was returned to those locations, Hertz employees often had to drive them for miles to find a Supercharger, which added yet more expense.

      All in all, this seems like a case study in unbridled enthusiasm for new tech overtaking good planning combined with some unexpected kicks in the shins like when Tesla dropped their prices significantly, lowering Hertz's resale profits. Cant blame it all on Tesla, however the part about car repairs being very high and very slow falls directly in Tesla's lap. The rest is partly Hertz's mess up combined with customers who dont like charging and apparently can't drive a car with great acceleration and braking.

      A perfect storm = major losses and a cautionary tale for all the other rental companies.

      29 votes
      1. [2]
        puhtahtoe
        Link Parent
        Hundreds?? I can understand a few of these due to human error but hundreds is completely unacceptable. A false arrest can destroy a person's life. This alone should have been enough to get the...

        resulting in hundreds of innocent Hertz customers getting arrested on charges of stealing rentals they’d actually returned.

        Hundreds?? I can understand a few of these due to human error but hundreds is completely unacceptable. A false arrest can destroy a person's life. This alone should have been enough to get the company investigated, if not shut down.

        28 votes
        1. arghdos
          Link Parent
          Yeah, TechDirt had a bunch of reporting on this a few years ago: https://www.techdirt.com/2022/12/14/hertz-shells-out-168-million-to-settle-364-false-theft-reports/...
          10 votes
      2. [2]
        devilized
        Link Parent
        Agreed. I had a rental reservation from Hertz in Phoenix last year and all they had left in the "choose your own car" lot were a few electric cars. We didn't want one (we drove 1k miles that week...

        They also misjudged the average traveller's appetite for anything other than a car they were familiar with:

        Agreed. I had a rental reservation from Hertz in Phoenix last year and all they had left in the "choose your own car" lot were a few electric cars. We didn't want one (we drove 1k miles that week and didn't want to deal with charging). So we ended up asking for other options at the rental desk and they ended up giving us some fancy Alfa Romeo SUV, which is normally one of their luxury rentals, at our standard rate. As we were getting ready to leave, we watched multiple people get into a car, realize it was electric, and then get out to try and find something else.

        Electric cars used to be an upgrade/extra cost, but now I just see them mixed in with the "choose your own car" lots.

        12 votes
        1. gowestyoungman
          Link Parent
          I definitely get that. I own an EV and charging at home is easy and convenient, but on a busy trip timing is already stressful, the LAST thing I'd want to do is search an unfamiliar area for a...

          I definitely get that. I own an EV and charging at home is easy and convenient, but on a busy trip timing is already stressful, the LAST thing I'd want to do is search an unfamiliar area for a charger and then wonder how long it would take to charge an unfamiliar car while watching the clock. Even on a vacation, Im there to have fun, not sit at a charger for half an hour.

          17 votes
      3. chocobean
        Link Parent
        Read: bought into lies told by enthusiastic sales people They weren't interested in new tech, they were told it'll make them mega bucks. The same "enthusiasm" in AI is being bought up by lots of...

        unbridled enthusiasm for new tech

        Read: bought into lies told by enthusiastic sales people

        They weren't interested in new tech, they were told it'll make them mega bucks. The same "enthusiasm" in AI is being bought up by lots of players right now and I predict a similar "mismatch in expectations" coming soon

        5 votes
      4. Promonk
        Link Parent
        I worked for Hertz many moons ago, and in my experience, this should be the company motto. I'm legitimately amazed they haven't gone completely out of business yet. Just goes to show what legacy...

        ... major losses and a cautionary tale for all the other rental companies.

        I worked for Hertz many moons ago, and in my experience, this should be the company motto. I'm legitimately amazed they haven't gone completely out of business yet. Just goes to show what legacy and name recognition will get you.

        1 vote
  2. [15]
    Wafik
    Link
    The bet on EVs never made sense to me. I'm a believer. I own an EV. But most of the benefits come with time. You pay more up front and save money over time on operating costs (in theory, even this...

    The bet on EVs never made sense to me. I'm a believer. I own an EV. But most of the benefits come with time. You pay more up front and save money over time on operating costs (in theory, even this is debatable with EV repair costs). For rental car fleets that want to turn over their cars fast, you lose out on this reality.

    I guess up to the point Hertz decided to buy 100,000 cars, Tesla's had traditionally held their value better than ICE cars and how could they have predicted the price war Tesla started, but it still seems there was no plan beyond "First we get the EVs, then profit!" Seems very familiar to current excitement over AI.

    15 votes
    1. [14]
      NaraVara
      Link Parent
      Eventually people will be familiar enough with EVs, and the charging infrastructure will be in place, to where it makes sense. On raw performance an EV tends to beat an equivalent “tier” of ICE...

      Eventually people will be familiar enough with EVs, and the charging infrastructure will be in place, to where it makes sense. On raw performance an EV tends to beat an equivalent “tier” of ICE car (though it’ll be more expensive at the same tier still) on everything but range. I think introducing people to the quirks of driving an EV through the rental market would be a good way to improve adoption over the long-run by just improving familiarity.

      BUT Tesla is not a good make to try to do it with. They’re luxury cars and luxury cars make big trade-offs in reliability, resilience, and general cost of ownership in exchange for performance, comfort, and “flashiness.” But for a mainstream rental that’s exactly the wrong set of design trade-offs you’re after. If you’re running a rental fleet you want it optimized for rock-solid reliability and ease of repair and maintenance. Even if it was a more established luxury automaker with better QA, like BMW, I still wouldn’t stock a rental fleet full of them. They will dramatically increase the scale of logistical headaches for the company and reliability/trustworthiness headaches for the customer.

      10 votes
      1. [9]
        boxer_dogs_dance
        (edited )
        Link Parent
        Also, especially in the Southwest, range is what tourist customrrs want from a rental car for the most part. If I want to visit Sedona and the Grand Canyon from Phoenix, I will be afraid of...

        Also, especially in the Southwest, range is what tourist customrrs want from a rental car for the most part.

        If I want to visit Sedona and the Grand Canyon from Phoenix, I will be afraid of running out of charge in the desert.

        9 votes
        1. [8]
          everythingisblue
          Link Parent
          Ironically, when on a vacation to Sedona a few years ago, we rented a Tesla Model 3 out of Phoenix (from a guy on Turo). We made the drive from Sedona to the Grand Canyon south rim and back, and...

          Ironically, when on a vacation to Sedona a few years ago, we rented a Tesla Model 3 out of Phoenix (from a guy on Turo). We made the drive from Sedona to the Grand Canyon south rim and back, and stopped at a supercharger in, I believe, Tusayan on the way there, and Flagstaff on the way back, for about 25 minutes each stop. It was a very pleasant rental car and we didn't mind adding a little time to our drive to charge and grab drinks/snacks.

          I definitely get the fear though. There was one stop somewhere on that trip where we had to charge but there wasn't a supercharger, and that was very sketchy. It was on some app that shows you were public chargers are, and it was basically on the side of some apartment or hotel, and charged quite slowly compared to the superchargers, and the area was not nearly as nice as where they put the superchargers. We survived though.

          We rented that car to experience a slice of EV ownership, and I'd sum up my experience as:

          • Tesla supercharging network (was/is?) much better than the other options
          • The Model 3 was pretty fun to drive
          • Range fear is a real thing, but planning ahead nearly eliminates it in most cases
          • IMO An EV is a much better fit for a daily predictable commute where you know the charger locations than it is for a transportation option while traveling, but we did enjoy it on our trip
          7 votes
          1. [7]
            NaraVara
            Link Parent
            I wonder if it would be practical to hitch a trailer with a gas generator in it to the car for long drives. Considering the efficiency losses it’d still make gas cars more practical for renting in...

            IMO An EV is a much better fit for a daily predictable commute where you know the charger locations than it is for a transportation option while traveling, but we did enjoy it on our trip

            I wonder if it would be practical to hitch a trailer with a gas generator in it to the car for long drives.

            Considering the efficiency losses it’d still make gas cars more practical for renting in those contexts. But to make an EV workable for the few long drives a year people do it might not be a big deal.

            3 votes
            1. [6]
              bengine
              Link Parent
              This is basically a range extender like in a Chevy Volt except trailers add huge amounts of aerodynamic drag and generators are expensive. The biggest portable generator at Home Depot can put out...

              This is basically a range extender like in a Chevy Volt except trailers add huge amounts of aerodynamic drag and generators are expensive.

              The biggest portable generator at Home Depot can put out 12kW for $3500, but at highway speeds without a trailer it looks like a model 3 consumes 17kW. Pretending there aren't any conversion losses, and ignoring the huge trailer impact to range, that would get you to 1.5x range. But towing a trailer will wreck your aerodynamics, add weight, etc. so it could be 1.5-2x that power consumption so it's down to 1.35-1.45x range. A bigger generator would be better, but at that point they're not really portable for a small EV and are a lot more expensive (~$12k for a 30kW backup model). Also add in the hassle of storing this when not in use.

              If you can't plan your trip around some charging stations it'd be much better just to rent an ICE car for those occasions.

              2 votes
              1. Grumble4681
                (edited )
                Link Parent
                Notable that the specifications for that generator you referenced says its 540lbs, and a small open utility type trailer could be somewhere between 300-700lbs. You could be adding 1000lbs of...

                Notable that the specifications for that generator you referenced says its 540lbs, and a small open utility type trailer could be somewhere between 300-700lbs. You could be adding 1000lbs of weight which is also harder on your brakes and tires. Even if it worked, you'd be trading range anxiety for trailer anxiety, because a trailer does require some work to properly secure it and it's not necessarily something people are familiar with to reverse with or take corners with.

                Also 540lbs is too heavy to use any of those cargo carrier type racks that just secure to the hitch without a trailer. Even if you had a rack that could support that weight, most cars and the hitches that are appropriate for those can only handle like 200lbs tongue weight. For example, something like this says it can handle 500lbs, which 540 already exceeds that but additionally you need a vehicle and a hitch that can handle 550lbs of tongue weight. At that point you're probably up to trucks that are designed for towing and you could likely just use the open bed if you secure the generator anyhow.

                Figured I'd add that as it does really highlight how unrealistic it would be to use a generator like that.

                Also I recently made a trip in my 2015 Toyota Corolla over 400 miles with no trailer and no weight really in my car other than me, and got about 35mpg, and then did the same trip again with a 5x8 enclosed uhaul trailer and towed it with that very same Corolla and got 25mpg. I probably added 1500-2000lbs of weight including the trailer and all my belongings onto my car, and iirc my Corolla is just under 3000lbs when unloaded. So I was only getting like 70% of the mpg that I got with my vehicle unloaded. I don't know if a generator on an open trailer would be worse for aerodynamics than a 5x8 enclosed uhaul trailer though. Obviously that's not an EV, but figured it's relevant when talking about loss of efficiency from added weight and aerodynamics.

                1 vote
              2. [4]
                NaraVara
                (edited )
                Link Parent
                So I looked for some examples. This one was interesting. And after seeing how his retrofit works, yeah it’s a really fucking stupid idea haha. I reckon maybe, in a true emergency, if you just need...

                So I looked for some examples. This one was interesting. And after seeing how his retrofit works, yeah it’s a really fucking stupid idea haha.

                I reckon maybe, in a true emergency, if you just need to get enough juice to get you to a charging station you could have something like this but you sacrifice a lot of all your trunk space, a ton of weight, and make a ton of noise. Massive waste.

                I’ve seen some solar panel solutions that supposedly can charge a Tesla as well, but the inverters are like half the size of an AC unit. Seems doable for an emergency, but you’re losing a bunch of cargo capacity and probably introducing a lot of safety issues in a wreck.

                1 vote
                1. [3]
                  bengine
                  Link Parent
                  In my opinion, most of these "solutions" are more about can it be done rather than should it be done. The solar example has 1.2kW of panels which is absolute best case. Thousands of dollars, all...

                  In my opinion, most of these "solutions" are more about can it be done rather than should it be done. The solar example has 1.2kW of panels which is absolute best case. Thousands of dollars, all the time, and hassle to be able to charge his car in 4-5 days? If that was sold as a product, nobody would be buying it. What's good for clicks on youtube don't always translate to real world workable solutions.

                  I think it's a lot better to understand the limitations of any product, your use cases and how well they align. You might need to adapt, or maybe it's not the right product for you right now.

                  1. [2]
                    NaraVara
                    Link Parent
                    Partly these guys are over-engineering the solutions to be able to use these as “range extenders” or be totally off the grid. Realistically what they should be trying to build for is an emergency...

                    Thousands of dollars, all the time, and hassle to be able to charge his car in 4-5 days? If that was sold as a product, nobody would be buying it. What's good for clicks on youtube don't always translate to real world workable solutions.

                    Partly these guys are over-engineering the solutions to be able to use these as “range extenders” or be totally off the grid. Realistically what they should be trying to build for is an emergency back-up plan to charge the battery just enough to get you to an actual charging station. In a situation like that, you’d maybe be willing to spend an hour or so just to get an extra 30 miles of range, not expecting to be able to charge the full battery capacity.

                    But at that point, maybe just get a solar charger for your phone and call a tow truck with it instead?

                    1 vote
                    1. bengine
                      Link Parent
                      Yeah, I mean I can almost understand but it all seems so Rube Goldbergian to me, and at some point doesn't seem really related to electric cars. If someone runs out of fuel in their ICE car I...

                      Yeah, I mean I can almost understand but it all seems so Rube Goldbergian to me, and at some point doesn't seem really related to electric cars. If someone runs out of fuel in their ICE car I wouldn't tell them to start towing an extra 100gal tank on a trailer, I'd ask why they didn't stop for fuel when they were running low. I'd rather spend a couple mins extra planning on charging stations for an unusual trip, rather than all the combined effort here.

                      1 vote
      2. [4]
        Wafik
        Link Parent
        I agree with your first point but Tesla is not a luxury brand. Yes, the cost leans closer to luxury cars but nothing about the model 3 is luxurious. I think "premium" is probably a better...

        I agree with your first point but Tesla is not a luxury brand. Yes, the cost leans closer to luxury cars but nothing about the model 3 is luxurious. I think "premium" is probably a better description. That said, I still agree with your point. I don't think any company is currently producing EVs that are as reliable as you probably want. Every EV relies heavily on software and most of it is glitchy/buggy.

        5 votes
        1. [3]
          NaraVara
          Link Parent
          They definitely try to position themselves as a luxury brand, that’s an explicit part of their business strategy to improve adoption of EVs by making them seem cool and fancy rather than commuter...

          Tesla is not a luxury brand.

          They definitely try to position themselves as a luxury brand, that’s an explicit part of their business strategy to improve adoption of EVs by making them seem cool and fancy rather than commuter econoboxes.

          I’d agree that they’re not very good at being a luxury brand when you compare them against the established automakers, but that’s like the difference between being a bad designer and not being a designer.

          9 votes
          1. [2]
            Wafik
            Link Parent
            Yeah, fair. I was more talking about my opinion than what Tesla considers themselves. Everything over a certain price in the auto industry is "luxury" which is dumb and devalues the meaning of the...

            Yeah, fair. I was more talking about my opinion than what Tesla considers themselves. Everything over a certain price in the auto industry is "luxury" which is dumb and devalues the meaning of the word outside of the fact that it's a luxury to throw away that much money on a car.

            1. NaraVara
              Link Parent
              Arguably it’s the “luxury” of being an early adopter on a new technology. The supercharger network is also a big perk that isn’t necessarily part of the car itself, but a luxurious part of the...

              Arguably it’s the “luxury” of being an early adopter on a new technology. The supercharger network is also a big perk that isn’t necessarily part of the car itself, but a luxurious part of the experience of owning one.

              1 vote
  3. bgc
    Link
    I am a loyal Hertz customer but I was pretty confused by the Tesla offering. It was enticing at first because it was cheaper than my usual 'whatever is cheapest' economy car rental, it dawned...

    I am a loyal Hertz customer but I was pretty confused by the Tesla offering. It was enticing at first because it was cheaper than my usual 'whatever is cheapest' economy car rental, it dawned pretty fast that I would have to learn a new driving and charging paradigm for use, and also as a non EV driver, I simply don't know how the app works for a rental or even how long it takes to charge. Too stressful for me regardless of how cheap it is.

    I wish they could have reduced the friction for these things.

    8 votes
  4. [2]
    rosco
    Link
    I've been perusing the hertz used cars sales and there seem to be some pretty hot deals in there. Anyone have any experience buying a used rental car? Any thoughts on the 2022-2023 electric Teslas...

    I've been perusing the hertz used cars sales and there seem to be some pretty hot deals in there. Anyone have any experience buying a used rental car? Any thoughts on the 2022-2023 electric Teslas or Subarus?

    4 votes
    1. sobercasinoman
      Link Parent
      I bought a used rental car in 2019 from an auto mall that was from Enterprise, I think? A '17 Hyundai Sonata that I'm still driving. I haven't had any problems with it apart from one of the lights...

      I bought a used rental car in 2019 from an auto mall that was from Enterprise, I think? A '17 Hyundai Sonata that I'm still driving.
      I haven't had any problems with it apart from one of the lights not working correctly, but it's not DRL, headlights or brights, so it wasn't worth replacing.

      5 votes