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A recent video by CNBC takes an in-depth look at a problem Hertz is having: lack of demand for Tesla rentals.

The Hertz-Tesla “deal” was a big news a couple of years ago, and has kept producing big news since. It massively pumped Tesla’s stock, so naturally many readers who invested were excited, and the insufferable Stans on social media talked about it endlessly. Now, few of the fanatical shareholders want to talk about it, because Hertz isn’t nearly as excited as it once was. Drivers have been having problems, and the Hertz said it’s backing out of the deal when execs realized that repair delays, repair costs, resale values, and other issues were eating at the bottom line.

Now we’re hearing from CNBC that there’s another big downside: people now don’t want to rent them.

At this point, Hertz and its investors have a big choice to make: back out of EV and go back into wait-and-see mode like its rivals, or find a way to make the EV rental market work better.

The story of Hertz and EVs actually goes back to 2020, when the company entered bankruptcy. With Coronavirus travel restrictions, few were leaving home, which left the company in a lurch worse than the volatile situation it was already in before the Pandemic. Hertz isn’t only a car rental company: it also offer car sales (the used rental cars) and equipment rentals (trucks, forklifts, trenchers, etc) for businesses. The company had already swallowed up Dollar and Thrifty 8 years earlier.

The Tesla buy was part of a much larger effort to launch back out of bankruptcy in 2021 (something that didn’t get mentioned in the press releases at the time). To really succeed again, the company had to do the normal bread-and-butter stuff all rental car companies do, but the company also needed some real sizzle to go with that, whether there was steak or not. And, sizzle it did, with stocks rising big just as Tesla’s did.

But, as Lora Kolodny points out, the “Hertz Deal” wasn’t a deal at all. The company had only announced intent to buy a bunch of cars, but didn’t get locked-in pricing, discounts, or anything else that could have been fairly demanded with such a big fleet buy. But, later filings did show that there was some sort of agreement in place later, but with no details publicly disclosed. So, there’s a deal but not necessarily for 100k cars, but with a stated goal of converting 25% of the Hertz fleet to electric (between all EV brands, including GM and Polestar).

For 2022, that 25% figure was pretty close. Hertz spent about $10.6 billion on vehicles (including fleet, lease, and equipment), and likely spent about $2.5 billion on Teslas. That’s not far off, and it shows that the company didn’t pick up much from other brands. This left Hertz’ EV effort almost synonymous with Tesla, making for a “calling card” while other big rental companies (Avis and Enterprise are both bigger than Hertz) mostly sat the EV market out.

The goal was obviously to project a much greener image, capture corporate leases and rentals that are aimed at meeting ESG goals, and otherwise gain a first mover advantage over larger competitors who weren’t fresh out of bankruptcy. It was also hoped that regular drivers would get a taste of EV ownership, which could lead to them wanting to buy a used Tesla from them or recommend to friends.

Rideshare rentals are also a big market for EV rentals. Hertz already had deals with Uber, and it was expected that rideshare drivers would want to make the switch as part of that program, too.

But, things didn’t go as hoped for most of this plan.

For one, corporate rentals and leases, plus business travelers, haven’t been interested as Hertz had hoped.

Consumers are still anxious about EVs, and have been a lot more afraid to rent an EV than anticipated. Teslas are getting rented out, of course, but the interest is mostly coming from people who already own an EV themselves, and want to stay electric for road trips and driving out of airports.

The one thing that did work out well was rideshare. As of a year ago (most recent data) the majority of EVs owned by Hertz were being used by rideshare drivers. This helped the company rent out 2/3 of the EV fleet, so it didn’t make sense to keep buying even more EVs. This makes it for a good deal for both Uber and Hertz, while bailing out Hertz when other things didn’t pan out.

Harry Campbell (“The Rideshare Guy”) points out that there’s really no better use case. Rideshare driving is local, spends a lot of time in stop-and-go traffic, and involves going a lot of miles every week. This makes the whole operation a lot cheaper, and it’s better for Hertz because rentals are a lot more predictable. But, it comes at the cost of extending a big discount, almost half the daily revenue, so it doesn’t help as much as just bail out.

Accidents are another big problem for the company. EVs are getting in more accidents than ICE vehicles, and for Tesla, accidents are a particularly big cost problem. This makes the whole thing a lot less profitable, which makes it not great for Hertz. Lora Kolodny mentions that Tesla is often seen as having expanded the number of vehicles on the road without building out the service and repair infrastructure. Tesla has tried to do more repairs and maintenance in house to make up for this.

Tesla price cuts after the high prices of 2022 (which Hertz bought at) also hurt the company. With so much spent and now so little that can come back out of the cars when it comes time to sell them, the company took a big hit and continues to. It’s even worse for the balance sheets, even if Hertz hasn’t sold the car and actually took the loss.

In response to all this, Hertz has announced that it plans to keep doing EVs, but not with Tesla. Some of the biggest problems happened with Tesla and not with other brands, like Volvo/Polestar and GM. Those other companies have better parts and service networks, alleviating much of the risk. In the rideshare side of the business, Teslas are now only being rented to more experienced drivers so that the company can keep the accident rate down.

Hertz is still very profitable, but the EV experience has been a challenge that brought them down a little. The learning curve is being climbed, and Hertz might be ahead of the competition in most ways.