Test driving an electric vehicle before buying it? Good idea. But finding one could soon be harder.
For rental companies, electric cars have been a financial disaster. Hertz, for example, wanted to buy 100,000 Teslas, but slashed that figure after their resale value fell much faster than expected.
The Hertz experience has had a deterrent effect: several companies in this sector are now trying to sell off their electric vehicles. And they won’t be buying more of them tomorrow.
Last year, more than 4% of cars purchased by rental companies were electric, according to S&P Global Mobility. This year, just 1.4%.
In theory, renting an electric car is a great way to get acquainted with the intricacies of a battery-powered vehicle.
“Rental companies could play a critical role in educating consumers and driving electric adoption,” said Stephanie Valdez-Streaty, an analyst at consulting firm Cox Automotive. “But there’s a long way to go.”
PHOTO TAKEN FROM THE NATIONAL RENEWABLE ENERGY LABORATORY WEBSITE
An electric car plugged into a charging station at Fort Worth-Dallas Airport in Texas. Installing electric charging stations at airports can be tricky.
According to Mme Valdez-Streaty said lessors have recently been offering good deals on electric vehicles, but she doesn’t expect those deals to last as companies have reduced their electric fleets.
Hertz and its competitors found that making money renting electric vehicles was harder than expected. Their airport facilities, for the most part, didn’t have chargers.
The lightning-fast acceleration of electric cars has surprised many customers: there have been accidents and insurance premiums have gone up. Finally, in some cases, getting replacement parts has taken longer than for gasoline-powered cars.
They thought electric vehicles would be simpler and cheaper to maintain. They find out that’s not the case.
Karl Brauer, analyst at iSeeCars.com
At Hertz, we simply say that we will “continue to offer the widest possible choice of vehicle brands and models, including electric ones.”
Price drop
The biggest problem for lessors is the rapid depreciation of Tesla vehicles. Elon Musk’s company slashed prices last year to bolster sales, sending prices of used Teslas down. This year, used electric vehicles have depreciated faster, on average, than gasoline-powered cars, according to iSeeCars.com; in May, for the first time, the average price of used electric cars in the U.S. was lower than that of used gasoline-powered cars.
PHOTO PROVIDED BY REUTERS
Elon Musk’s company has cut prices to support sales. The resulting drop in the price of used Teslas has caused unexpected losses for car rental companies.
Resale value is a key part of leasing companies’ financial calculations. They typically sell their vehicles when the mileage is relatively low and take a loss if they sell for less than expected. In the first quarter of 2024, the reduced value of electric vehicles reduced its profit by $195 million.
Rental companies “are 100% reliant on residual values,” said Shay Natarajan, a partner at Mobility Impact Partners, a private equity firm that invests in sustainable transportation. “It’s a very difficult business model.”
James Iovino of Baldwin, New York, had listed nine electric vehicles on the car-sharing site Turo. But he left the business in June after prices for electric vehicles fell.
I got burned for the same reason Hertz did: Elon Musk opens the hatch and the whole industry crashes.
James Iovino, who stopped offering Teslas on Turo
But the recent price drop isn’t deterring all lessors. Enterprise Mobility leases thousands of electric vehicles in the United States, Canada and Europe, and plans to buy more as demand increases, says spokesman Mike Wilmering.
More charging stations
Enterprise will also install more charging stations: “We’re looking at the energy needs and availability of charging stations both at our sites and in the communities we serve,” Wilmering said. “We want customers to have a great experience with electric vehicles; that remains at the heart of our long-term strategy.”
At Hertz, they say they have “learned a lot as a pioneer in the electric vehicle rental market. Hertz adjusts its fleet based on demand and focuses on continuously improving the rental experience, which includes making it easy and satisfying for all customers.”
Charging is also an issue. Some rental companies expect customers to charge electric vehicles to about 70% before returning them. For the customer, this means stopping to charge towards the end of the trip, which isn’t always easy to do when you’re rushing to make your flight and there aren’t enough fast-charging stations around the airport.
PHOTO LEKAN OYEKANMI, ASSOCIATED PRESS ARCHIVES
Customers who rent Teslas have access to the vast Supercharger network, but most of these stations only work with Teslas. Those renting Kia, GM or Polestar electric vehicles must plug in elsewhere.
Rental companies don’t want to be responsible for charging because they want to get the cars back on the road quickly. Plus, installing their own charging stations at airports isn’t always easy.
“Airports are notoriously not helping to build out the electric infrastructure,” says Raghu Iyengar, a Volkswagen of America executive in charge of rental sales. Sales of the ID.4 electric SUV to rental companies are close to zero, he says.
Customers who rent Teslas have access to the vast Supercharger network, but most of these stations only work with Teslas. Those renting Kia, GM or Polestar electric vehicles must plug in elsewhere, and these services each have their own payment apps. Additionally, in some areas — especially rural areas — fast-charging stations are rare or nonexistent.
As electric vehicles become more popular, rental companies will have to find a way to offer them, Iyengar said. “Electric cars are like a rising tide. Everyone will have to follow suit, including rental companies.”
This article was published in the New York Times.
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