Tesla's market value hits $1 trillion after Hertz agrees to buy 100,000 of its cars
The car-rental giant Hertz is making an audacious bet on
electric vehicles, purchasing 100,000 battery-powered vehicles from Tesla.
The news of the sale lifted Tesla shares, and the world's
most valuable automakers briefly hit an unprecedented $1 trillion market cap.
Hertz's purchases will be made up of the Tesla Model 3, a sedan that is the
cheapest vehicle currently available from the electric carmaker.
The enthusiasm wasn't just over the monetary value of the
sale — which is in the billions — but to the way it could effectively serve as
marketing for Tesla, getting many more Americans behind the wheel of an
electric vehicle for the very first time.
Meanwhile, the move is also a big marketing push for Hertz,
which is rebuilding after a recent bankruptcy.
"Both companies are going to benefit from this in ways
that no one else has imagined," says Ivan Drury, a senior manager at the
automotive information company Edmunds.
By the end of next year, electric vehicles would make up
more than 20% of Hertz's global fleet. That's a huge percentage, considering
that in most of the world, electric vehicles represent less than 3% of new car
sales.
But electric vehicle sales are increasing rapidly. And there
is growing pressure from companies and governments to accelerate the switch
away from gas and diesel to reduce the impact of human-caused climate change.
"Electric vehicles are now mainstream, and we've only
just begun to see rising global demand and interest," Hertz interim CEO
Mark Fields said in a statement.
Hertz's shopping spree could actually speed up the adoption
of electric vehicles, says Michelle Krebs, executive analyst at Cox Automotive.
"It exposes more consumers to EVs [electric vehicles]
and Tesla specifically," she says. "We know there's reluctance by
people to buy EVs because they have range anxiety ... and this is an
opportunity for them to get experience with EVs and with Tesla specifically."
Once they've actually driven an electric vehicle, she says,
shoppers may be much more likely to buy one for themselves.
Hamzah Mazari, who tracks the rental car industry for
Jefferies, says the move carries some risks for Hertz, like the cost of
investing in charging infrastructure. But it could bring big rewards,
especially if it allows the rental company to charge higher prices and still
attract customers.
"It's a little bit of a bet on consumer demand, you
know, that customers prefer [electric vehicles]," he says. "It's a
little bit of a move more into the premium segment."
It's also a way to appeal to investors who are increasingly
concerned about the environment, Mazari says.
A Tesla Model 3 is on display during the 19th Shanghai
International Automobile Industry Exhibition in Shanghai, China, on April 19.
Hertz said it was hiring quarterback Tom Brady to promote the Tesla Model 3s
it's buying to diversify the rental car company's fleet.
The Teslas will be available for rent at airports in major
U.S. markets, Hertz said in a statement, as well as in some European cities.
The cars will feature a special "rental experience" that will include
education about how to use the vehicles, Hertz says.
Rentals will start as soon as next month. Hertz has hired
Tom Brady, winner of seven Super Bowls, to promote the availability of Teslas
in ads.
Hertz went through bankruptcy last year as high levels of
debt collided with a drop in demand triggered by the pandemic. But after
emerging from bankruptcy, it's been on stronger financial footing — including a
big boost from selling off part of its rental fleet while used car prices have
been sky-high.
However, a global shortage of semiconductors has cut sharply
into new vehicle production, which has made it challenging for all rental car
companies to buy new vehicles to update their fleets.
Tesla, while still affected by the shortage, has done a
better job than many of its rivals at managing the supply chain challenges. In
fact, Tesla has increased its production, setting new records for itself every
quarter so far this year.
Historically, rental companies have purchased vehicles in
bulk at steep discounts. But this is not a normal fleet purchase, or a normal
auto market.
Bloomberg reported that Hertz would be paying approximately full price for the Teslas, citing descriptions of the total value of the transaction from sources familiar with the matter.
The Tesla Model 3 is
currently listed starting at about $40,000 on Tesla's website.
Hertz would not comment on the price of the vehicles, and
Tesla did not return a request for comment.
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