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TESTING TESLA

Hertz just paved the way for wider adoption of electric vehicles in the US

Tesla vehicles are lined up at a factory in Shanghai.
Reuters/Aly Song/File Photo
Rent-a-Tesla.
  • Courtney Vinopal
By Courtney Vinopal

Breaking news reporter

Published

Tesla’s valuation hit a record $1 trillion today (Oct. 25) after Hertz announced it will purchase 100,000 electric vehicles from the car company by the end of 2022, giving the manufacturer its biggest-ever order. The deal is worth an estimated $4.2 billion in revenue for Tesla, and could help pave the way for wider adoption of electric vehicles among US drivers.

A majority of Americans are not yet sold on electric vehicles (EVs). Nearly half of US adults say they are uninterested in purchasing one, according to a survey by the Pew Research Center. A big obstacle to winning over these buyers is familiarity: people who had heard at least a little about EVs were more likely to express interest in purchasing one in the Pew survey.

Test driving is one way to bridge that gap. And Hertz’s decision to rent out Tesla Model 3s in major US markets, as well as some European cities, as early as November could prove to be one of the most effective marketing tools to help EVs enter the mainstream.

Paving the way for wider adoption of EVs

The opportunity to rent Teslas will give drivers confidence in EVs as policymakers push to electrify the US auto fleet, wrote Michelle Krebs, an analyst with Cox Automotive, by email. While US president Joe Biden aims to have half of new car sales be electric by 2030, EVs comprise just 2% of new car sales, and less than 1% of the country’s existing fleet of 289 million vehicles. “Rental cars are a perfect way to win over trepidatious consumers,” she added, noting that surveys show people tend to become more accepting of new technologies when they gain experience with it (this was the case for autonomous vehicles).

A February survey by the analytics company J.D. Power found nearly three times more respondents who had ridden in a battery-electric vehicle before said they were“very likely” to purchase one, compared to those who hadn’t tested one out.  “Anything stakeholders can do to get more people into electric vehicles, whether it’s experiential events, take-home test drives or other proactive efforts, will help break down the preconceptions people have about BEVs and drive higher consideration,” Stewart Stropp, senior director of automotive retail at J.D. Power, said in the report.

Tesla wins the rental game, for now

The massive order, reportedly the single-largest purchase ever for electric vehicles in history, will give Hertz the largest EV rental fleet in North America. The company also said it was installing thousands of EV chargers throughout its location network, addressing another major concern about a paucity of charging stations. Shares of Hertz, which only re-emerged from bankruptcy in June, surged as high as 14% on the news.

Rental car companies have been reluctant to purchase EVs over worries about insufficient range and charging infrastructure. But those concerns are fading as data suggests the total cost of ownership for EVs (a vehicle’s purchase price plus operating costs) is now lower than conventional vehicles based on fuel and maintenance savings.

Early trials show EVs tend to last longer and cost less to maintain than traditional commercial-vehicle fleets. A 2019 analysis by New York City found the costs of owning and operating its all-electric vehicles (including servicing costs) were less than for gas, hybrid, and hybrid plug-in models despite higher sticker prices for EVs. Annual maintenance costs for all-electric vehicles in their fleet in 2018 were less than $400, while gas-powered vehicle cost the city at least $1,600 for maintenance.

“There are so many maintenance intervals that they really are held to by law when it comes to gasoline powered cars,” said Ivan Drury, senior manager of Insights at Edmunds.com. He added that bringing on a fleet of EVs would reduce the period of “downtime” when vehicles are unavailable.

Hertz’s purchase adds to Tesla’s lead in the electric race. While all major manufacturers are now producing or planning a lineup of electric models, Tesla is the first brand that comes to most Americans’ minds when they think of electric vehicles, according to a Morning Consult poll. And none have matched Tesla’s EV sales. The Model Y is the world’s best-selling EV and the Model 3 was Europe’s best-selling car of any kind in September.

With Hertz’s purchase, Telsa may show that it can reduce manufacturing costs even further by delivering high volumes of EVs. Automakers investing billions in factories to produce EVs—such as GM, Ford, and Fiat—could find it even harder to compete. “Tesla definitely beat its competitors to the punch on this one, in a big way,” said Krebs.

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