Hertz Starts Dumping Its Fleet of EVs and Turns Toward ICE Vehicles, but Cathie Wood Doesn’t Think Tesla Is on the Chopping Block

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It was just over two years ago that Hertz spurred a fierce rally in Tesla shares when it announced its intention to buy 100,000 Tesla EVs. Now, as the EV mania has cooled down substantially, euphemistically speaking, Hertz is abandoning its aggressive EV push in favor of conventional Internal Combustion Engine (ICE) vehicles.

Back in October 2023, Hertz had announced that it would slow down its pace of EV acquisition, citing Tesla’s price cuts and their second-order effect on the residual value, as well as higher-than-expected repair costs for the company’s growing EV fleet. At the time, the car rental company owned around 50,000 electric vehicles, including 35,000 Tesla EVs – a far cry from the company’s original goal of acquiring around 100,000 Teslas.

Today, in a fresh filing with the SEC, Hertz announced that it would sell around one-third of its total EV fleet corresponding to 20,000 EVs, while absorbing $245 million in related costs. In what stands out as a striking reversal, the car rental company now intends to invest a portion of the sale proceeds into the purchase of ICE vehicles. While expanding on the rationale behind these moves, Hertz noted:

“This will position the company to eliminate a disproportionate number of lower margin rentals and reduce damage expense associated with EVs.”

According to the company, these policy changes will generate free cash flow of between $250 million and $350 million over the course of 2024 and 2025. Bear in mind that Hertz has been struggling with the high collision and damage costs of EVs as well as their accelerated depreciation.

So, will this move affect Tesla in a dramatic fashion? ARK Invest’s Cathie Wood doesn’t think so. According to the flamboyant asset manager, Hertz is likely to axe the non-Tesla portion of its EV fleet first. Of course, given the fact that Teslas account for around 50 percent of Hertz’s EV fleet, some impact is inevitable.

Tesla disclosed in early January that it delivered 484,507 units in the last quarter of 2023, beating expectations and bringing its total deliveries for the year to 1.808 million units. However, the company’s inventory levels again increased by around 11,000 units. Moreover, some Tesla models are slated to lose the $7,500 EV tax credit in the US either completely or partially, leading to a potentially tougher 2024 demand outlook. Against this backdrop, even a partial reduction in Hertz’s gigantic Tesla fleet does not bode well for optics or the EV giant’s bottom-line scenario for the year ahead.

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