Hertz Will Shrink Electric Fleet After Being Burned by Tesla’s Price Cuts

The rental car company Hertz will be selling about one-third of the electric vehicles in its fleet after they lost value more quickly than expected, the company said on Thursday. The drop in value is a blow to the company’s efforts to replace gasoline vehicles with cars that do not produce tailpipe emissions.

The electric vehicles the company owned were also more likely to be involved in collisions, Hertz said, and they proved costly to repair. The company said it planned to buy more gasoline-powered vehicles to replace the 20,000 battery-powered cars it was selling.

“Certain of these E.V.s became uneconomical for us,” Stephen Scherr, Hertz’s chief executive, said in an interview on Thursday.

The company’s decision to sell 20,000 vehicles, which Mr. Scherr blamed partly on “unprecedented” price cuts by Tesla that undercut the cars’ resale value, provided fuel for opponents of Biden administration policies to promote the technology as a tool to address climate change and air pollution.

Senator John Barrasso, a Republican from Wyoming, seized on the announcement during a hearing on Thursday on the climate policies.

Hertz’s decision showed that electric vehicles are costly and unpopular, Mr. Barrasso told the Senate Committee on Energy and Natural Resources. “The demand for electric cars is stagnating,” he said, adding, “So much for the Biden economy.”

Mr. Scherr implicitly put much of the blame on Tesla, which makes about half of all electric vehicles sold in the United States, for the rental car company’s decision to sell its electric vehicles.

Tesla vehicles, which make up the largest share of Hertz’s electric fleet, plunged in value after the carmaker, which Elon Musk runs, cut prices last year by about 30 percent. When the price of new vehicles is drastically lowered, it drives down the value of used cars because buyers can get the newer versions for less.

As a result, Hertz was forced to write down the value of its electric cars more quickly than it had expected, which weighed on profit, Mr. Scherr said.

Rental companies like Hertz estimate how much their cars will be worth when they eventually sell them, and that estimated decline in value is calculated as a cost. If the decline is more than expected, profit falls.

Mr. Scherr said Tesla was less willing than other carmakers to give Hertz volume discounts on replacement parts. “Tesla is new to the game,” he said, suggesting that the electric car company’s relative inexperience in serving rental car companies played a role in that decision.

Tesla did not respond to a request for comment.

Hertz’s plan is at least a temporary reversal for the company, which in 2021 had announced it would buy 100,000 Teslas as part of a broader effort to electrify its rental fleet.

But the agreement did not set a deadline for Hertz to buy the cars, and the company has purchased only a fraction of that number. Hertz also offers electric vehicles by other manufacturers, including Kia, General Motors, Volkswagen and Polestar.

One potential reason the electric vehicles at Hertz were involved in more accidents, Mr. Scherr said, was that many people renting those cars did not have experience with the technology despite efforts by the company to educate customers. Electric cars accelerate more quickly than gasoline vehicles, and they are heavier. Demand for the vehicles was also less than the company had expected, Mr. Scherr continued.

Hertz’s decision is likely to bolster the argument made by some conservatives, including former President Donald J. Trump, that electric vehicles have been overly hyped. “It will fuel the narrative on the negative side for E.V.s right now,” said Jeremy Robb, senior director of economic and industry insights at Cox Automotive.

But Mr. Robb noted that electric vehicle sales in the United States totaled nearly 1.2 million last year, and were up 40 percent in the last three months of 2023 from the same period in 2022. “There is still a market for E.V.s,” he said.

Hertz is not abandoning its plans to electrify its fleet or buy more Teslas, Mr. Scherr said. But, he said, the market needs to develop further.

“Tesla is among the best-selling cars in America,” he said, “but it’s not yet the best rental car.” Mr. Scherr added: “Those two have not converged as quickly as many people, including ourselves, thought. But they will.”