June 19, 2024
Car Repair

Tesla’s liquidation sale at Hertz expected to drive down resale value of used EVs

A Hertz EV test-drive event in Los Angeles just last July. (Getty Images)

Electric vehicles were already deemed unattractive by a portion of the car-buying public. Now, their reputation could suffer another blow as rental giant Hertz offloads 20,000 of them, primarily Teslas, in favor of gas-powered cars.

Hertz, the largest U.S. fleet operator of EVs, has attributed the sale to high repair costs and lackluster demand for the vehicles offered for rent.

Industry analysts believe that this move will impact the second-hand market for EVs and deter buyers who are already reconsidering major purchases due to increased borrowing costs.

“The significant impact of Hertz’s EV fire sale is the negative perception it creates for the technology,” stated Karl Brauer, analyst at used-car aggregator iSeeCars.com.

“Mainstream consumers are already hesitant to purchase an EV, and this news only adds to their concerns.”

The higher repair costs associated with EVs are attributed to a lack of expertise in handling these vehicles and difficulties in sourcing replacement parts due to their newness, according to industry experts.

Hertz CEO Stephen Scherr mentioned elevated costs resulting from damages to certain EVs, especially Teslas, at a conference last year. Scherr also pointed fingers at Tesla for not providing discounts on bulk purchases of replacement parts, unlike other automakers, when announcing the liquidation of Hertz’s EV fleet.

Tesla and Polestar, popular choices for car rental companies, did not respond to requests for comments. Similarly, car rental firms Avis and Enterprise did not disclose their EV strategy.

Common Mistakes

CEO Scherr mentioned that Hertz restricted torque and speed on the EVs and designated them to more experienced users to ensure smoother rides after some renters experienced front-end collisions.

According to a survey by nonprofit Consumer Reports last year, startups and traditional automakers new to the technology have faced challenges with EVs, resulting in more issues than gas-powered cars.

The survey, based on owner feedback on over 330,000 vehicles, revealed that EVs from the past three years had 79% more problems compared to conventional cars.

For many EVs, damaged battery packs cannot be repaired or assessed after accidents, leading insurance companies to declare these vehicles as total losses even with minimal damage—resulting in higher premiums and offsetting the benefits of going electric.

German rental company SIXT announced a multi-billion-euro deal with Stellantis to purchase up to a quarter of a million vehicles. Details about Stellantis supplying some EVs to SIXT were not disclosed.

Hertz’s actions highlight a broader shift in the EV industry.

Despite committing significant funds to their EV plans in recent years, legacy automakers have scaled back production as demand decelerates.

According to market research firm Canalys, EV sales growth in North America is projected to slow to around 27% this year from a robust 72% in 2023.

Discounted Prices

Hertz may need to sell the EVs at discounted rates due to their higher mileage and visible damage such as scratches and dents, as per experts’ assessments.

“Having rented several Model 3s from Hertz over the past six months, some of them appear cosmetically rough,” commented Scott Case, CEO of EV research firm Recurrent Auto.

Almost all of the 500+ used EVs currently for sale at Hertz are Teslas, with some Model 3 sedans listed as low as $21,000—half the price of a new car and up to $10,000 cheaper than similar mileage cars from other sellers.

This significant price drop is likely to impact the second-hand EV market, which already commands lower prices than traditional used cars.

Data from iSeeCars shows that the value of used EVs dropped by 33.7% between October 2022 and October 2023, while the overall used car market only decreased by 5.1%.

However, Hertz could benefit from the $4,000 tax credit for certain used EVs under the Inflation Reduction Act, reducing the prices of some vehicles it is trying to sell well below many gas-powered cars.

Some experts suggest that the high repair costs of EVs are a temporary challenge that comes with any new technology and will diminish as more of these vehicles hit the roads.

“The infrastructure must catch up with the transition, which will bring down prices,” stated Lynne McChristian, director of the Office of Risk Management and Insurance Research at the University of Illinois.

FAQ

Q: Why is Hertz selling off its EV fleet?

A: Hertz cites high repair costs and weak demand as the reasons for selling its EVs in favor of gas-powered cars.

Q: What impact could this move have on the EV market?

A: The sale could affect the second-hand market for EVs and deter buyers who are already cautious due to rising borrowing costs.

Q: Are there any benefits for consumers in purchasing used EVs?

A: Consumers may benefit from discounted prices on used EVs, especially with tax credits available for certain models under the Inflation Reduction Act.

Conclusion

Hertz’s decision to sell off its EV fleet underscores the challenges faced by the electric vehicle market, including high repair costs, lower demand, and possible negative perceptions among consumers. While this move may impact the industry in the short term, experts believe that ongoing advancements and infrastructure developments will eventually lead to more widespread adoption of EVs. As the market continues to evolve, it will be crucial for manufacturers and rental companies to adapt to changing consumer preferences and address potential concerns surrounding EV technology.

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