Tesla's market value hits $1 trillion after Hertz agrees to buy 100,000 of its cars
Updated October 25, 2021 at 4:01 PM ET
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 deal offers a chance to test out electric vehicles
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.
Hertz hires Tom Brady to pitch the Tesla rentals
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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