Hertz Teams With Uber, Carvana in Big Shift to Electric Cars
(Bloomberg) -- 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 transportation. The order for Model 3s on Monday, the largest-ever for EVs at $4.2 billion, was such a 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 sought 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.
“Our approach is very strategic and very deliberate in terms of how we want to disrupt ourselves and, hopefully, disrupt the industry,” Mark Fields, who’s serving as interim chief executive officer at Hertz, said in an interview. “Instead of asking why, we’re asking why not.”
Under the agreement with Uber Technologies Inc., drivers for the ride-hailing giant who previously had to provide and maintain their own EVs will be able to rent one of 50,000 Teslas from Hertz instead. The program, which starts Nov. 1, is an alternative to buying or leasing, and many drivers may find it more appealing.
Had Uber bought and rented out the Teslas itself, some states might classify drivers as employees. The arrangement with Hertz allows Uber to increase the number of rides taken on EVs without having to change its business model.
“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 statement.
Partnering with Uber and Phoenix-based Carvana addresses two key weaknesses in the rental industry: 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.
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. Buyers will be able to pick up cars as soon as the following day. Carvana, home of the car vending machine, earns a commission.
“This provides us with a very effective direct-to-consumer sales channel,” Fields said.
By opening part of its EV fleet to ride-hailing, Hertz aims to maximize revenue per vehicle and improve profit margins. For example, cars typically rented out to leisure customers on the weekend could be used for Uber rides Monday to Friday.
Under the Uber agreement, drivers will pay a starting rate of $334 a week to rent a Tesla Model 3 with unlimited miles, plus expenses for recharging and incidental damage. That’ll gradually drop to $299. Initially, the program is open only to drivers with a 4.7-star rating and a minimum of 150 trips.
Drivers won’t be able to turn on Tesla’s autopilot feature, Fields said.
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. As with all rentals, Hertz covers or absorbs the cost of financing, maintenance, insurance and depreciation.
What Bloomberg Intelligence Says:
“Uber’s partnership with Hertz is probably aimed at fending off disruption from a direct rollout of robo-taxis, built on a network of electric and autonomous vehicles. Renting rather than buying vehicles suggests Uber will keep operating an asset-light model, though high variable costs could be a persistent drag on the contribution margin in the near term.”
-- Mandeep Singh, BI senior technology industry analyst
Click here to read the research.
Hertz has been renting to Uber drivers since 2016. The new relationship builds on that program, adding at least 50,000 Teslas to the pool of available vehicles by 2023 and possibly as many as 150,000. The 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.
And because the deal is exclusive, none of Hertz’s rivals in the U.S. can rent Teslas to Uber drivers. They can, however, offer other cars. Lyft Inc. has committed to switch entirely to EVs by 2030.
By embracing electrification, Hertz is positioning itself as the green alternative to Enterprise Holdings Inc. and Avid Budget Group Inc. That may appeal to the scores of companies looking to burnish their climate credentials, as well as to consumers wanting to reduce their carbon footprint. According to Uber, drivers who go electric cut tailpipe emissions much more than the average car owner.
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.
Hertz shares gained as much as 4% in trading Wednesday morning in New York. Uber shares rose as much as 1.2% , while Carvana advanced as much as 5%. Tesla gained as much as 3%.
Fields acknowledged that with so many changes to its way of doing business, there’s a risk Hertz stumbles or something out of its control goes wrong.
“There are lots of moving parts here,” Field’s said. “When there are hiccups, we need to be agile in learning and fixing those things.”
©2021 Bloomberg L.P.