Analysis: Hertz's EV sale to fan cost concerns, dampen used-car market
16/01/2024 15:33
By Akash Sriram and Nathan Gomes
Jan 16 (Reuters) - Electric vehicles were already
considered expensive and hard to repair. Now their image could
take another hit as rental giant Hertz HTZ.O dumps 20,000 of
them, including Teslas TSLA.O , for gas-powered cars.
Hertz, the largest U.S. fleet operator of EVs, has blamed
the sale on high repair costs and weak demand for the vehicles
it offers on rent.
Analysts and industry experts believe the move will affect
the second-hand market for EVs and dissuade buyers who are
already rethinking big purchases due to higher borrowing costs.
"The larger impact of Hertz EV fire sale is the perception
hit to the technology," said Karl Brauer, analyst at used-car
aggregator iSeeCars.com.
"Mainstream consumers are already hesitant to buy an EV, and
this news only supports their concerns."
The higher costs associated with repairing EVs stem from a
lack of sufficient expertise in dealing with such vehicles and
challenges in getting the replacement parts as they are still
very new, industry experts said.
Hertz CEO Stephen Scherr flagged elevated costs caused by
damages to certain EVs, particularly Teslas, last year at a
conference.
Tesla and Polestar, whose cars are popular with car rental
firms, did not respond to a request for comment. Car rental firm
Avis and Enterprise also did not respond to a query on its EV
strategy.
CEO Scherr said Hertz limited the torque and speed on the
EVs and offered them to more experienced users to ensure easier
rides after certain renters had front-end collisions.
Growing pains for startups and legacy automakers that are
new to the technology also mean that EVs have been facing more
problems than gas-powered cars, according to a survey last year
by non-profit Consumer Reports.
The survey, covering owner responses on more than 330,000
vehicles, showed that EVs from the past three years had 79% more
problems than conventional cars.
For many EVs, there is no way to repair or assess even
slightly damaged battery packs after accidents, which forces
insurance companies to write off the cars with a few miles -
leading to higher premiums and undercutting gains from going
electric.
German rental firm SIXT SIXG.DE said on Tuesday it signed
a multi-billion euro deal with Stellantis STLAM.MI to buy up
to a quarter of a million vehicles.
The deal will also see Stellantis provide some EVs to the
German mobility service provider, but the companies did not
offer further details.
Hertz' move underscores a wider shift in the EV landscape.
After pledging billions of dollars for their EV ambitions in
recent years, legacy automakers have pulled back their
production plans as demand slows.
EV sales growth in North America is expected to slow to
about 27% this year from a scorching 72% in 2023, according to
market research firm Canalys.
CUT-PRICE SALE
Hertz may have to dispose of the EVs at hefty discounts due
to the higher miles they have covered as well visible damage
such as nicks, scratches and dents, according to experts.
"Having rented several Model 3s from Hertz over the past six
months, my observation is some of them are cosmetically pretty
rough," said Scott Case, CEO of EV research firm Recurrent Auto.
Nearly all of the more than 500 used EVs the company has on
sale are Teslas, with some Model 3 compact sedans being listed
for as little as $21,000 - half the price of a new car and up to
$10,000 lower than cars of similar mileage at other sellers.
Such a cut-price sale would likely reverberate across the
second-hand market of EVs, which already command a lower price
than conventional cars.
The value of used EVs has dropped 33.7% between October 2022
and October 2023, even as the overall used car market dropped
only 5.1%, according to data from iSeeCars.
Hertz could, however, benefit from the $4,000 tax credit for
some used EVs under the Inflation Reduction Act, which brings
down the price of some vehicles it is trying to sell well below
many gas-powered cars.
Some experts also said the high repair costs of EVs are a
short-term challenge that comes with any technology and will
ease as more of those vehicles hit the road.
"The infrastructure has to catch up with the transition, and
that will bring the prices down," said Lynne McChristian,
director of the Office of Risk Management and Insurance Research
at the University of Illinois.
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EV sales growth over the years https://tmsnrt.rs/3vAxGNh
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(Reporting by Akash Sriram, Nathan Gomes in Bengaluru; Writing
by Aditya Soni)
((Akash.Sriram@thomsonreuters.com; On X as @HoodieOnVeshti;
+91-74116-87774;))