Hertz will rent up to half the 100,000 Teslas it just ordered to Uber drivers
Hertz Global Holdings Inc., fresh off a blockbuster order for 100,000 Teslas, reached an exclusive agreement to supply Uber drivers with electric vehicles and signed up Carvana Co. to dispose of rental cars it no longer wants.
Taken together, the deals represent a trifecta of aggressive and innovative initiatives with the potential to upend the car-rental business and hasten the transition to greener fuel sources. The car order on Monday, the largest-ever for EVs at $4.2 billion, was such as watershed moment that it propelled Tesla Inc.’s valuation past $1 trillion.
Just as surprising: The company behind it all is barely out of bankruptcy. Only 17 months ago, with the Covid-19 pandemic raging, Estero, Florida-based Hertz was so troubled and its future so uncertain that it was forced to seek protection from creditors. Now, under the control of hedge fund and private-equity owners, Hertz is leaning on mobile technology and digitization to transform a stodgy industry known for uninspiring cars and poor customer experiences.
Under the agreement with Uber Technologies Inc., drivers for the ride-hailing giant who previously had to provide and maintain their own EVs will, starting Nov. 1, be able to rent a Tesla from Hertz instead. It’s an alternative to buying or leasing and, according to Hertz, will be cheaper than either.
“Now is the time to drive a green recovery from the pandemic,” Dara Khosrowshahi, chief executive officer of San Francisco-based Uber, said in a joint statement with Hertz.
Partnering with Uber and Phoenix-based Carvana addresses two key weaknesses in the rental business: asset-utilization — how actively a car is rented out; and resale recovery — how much of the purchase price is recouped when the car is sold. By opening part of its EV fleet to ride-hailing, Hertz is aiming to maximize revenue per vehicle and improve profit margins.
Through the new deal with Carvana, one of the two biggest online car marketplaces, Hertz hopes to eliminate the discounting necessary when selling vehicles from its fleet through dealers and wholesalers. Consumers will be able to buy directly and pick up cars as soon as the following day. Carvana, home of the car vending machine, earns a commission.
Under the Uber agreement, drivers will pay a preferred weekly rate for unlimited miles in the Hertz EVs, plus expenses for recharging and incidental damage. Hertz, as with all rentals, covers or absorbs the cost of financing, basic maintenance, insurance and depreciation. Uber is offering drivers a zero-emissions incentive of $1 a ride for using EVs and 50 cents for every rider who chooses to go green.
Hertz has been renting to Uber drivers since 2016. Its new agreement builds on that program, adding at least 50,000 Teslas to the pool of available vehicles by 2023. The new EVs will be available first in Los Angeles, San Francisco, San Diego and Washington, D.C., with a nationwide rollout to follow in coming weeks.
Knighthead Capital Management, a distressed debt hedge fund, and Certares Management, a buyout firm specializing in travel, won the bankruptcy auction for Hertz with a $6 billion bid. The initiatives they’ve announced come ahead of a relisting of Hertz shares on the Nasdaq Stock Market.
Early indications are the strategy is paying off. Hertz’s market valuation, based on over-the-counter trading, jumped about $1.2 billion Monday after it announced its deal with Tesla, and stood at $12.9 billion as of Tuesday’s close.
Uber shares have fallen 9.8% this year, closing Tuesday at $46.02, while Carvana has climbed 22% to $291.56.
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