Bloomberg Hyperdrive is out today with the saga of how some self-important Wall Street bozos totally mismanaged the Hertz campaign to make electric cars part of its fleet. In the aftermath of their idiocy, they managed to set the EV revolution in America back years. It is a classic tale of idiots with more money than brains moving fast and
BREAKING things, thinking all the while there would be no consequences for their willful stupidity. On May 22, 2020, Hertz, the leading car rental company in America, filed for bankruptcy. It was the height of the Covid 19 pandemic and Americans were staying home in droves, afraid to venture outside, let alone rent a car to go on vacation. But every setback is an opportunity. Tom Wagner, the co-funder of hedge fund Knighthead Capital Management and Greg O’Hara, the founder of private equity firm, Certares Management, decided the time was right to buy Hertz. Neither had any experience in the rental car industry, writes David Welch of Bloomberg Hyperdrive . But to the self-styled disrupters of an archaic business, that was a virtue. Their financial analytics clearly showed the future of rental cars was in electric vehicles. “We felt we could position Hertz in a completely different way,” Wagner told Bloomberg Businessweek just before the IPO. The company then announced an unprecedented order for 100,000 Teslas . It planned to build out a national, and eventually global, charging network at its thousands of locations. Wagner was also a skiing buddy with Tom Brady, who was then the quarterback of the Tampa Bay Buccaneers, and persuaded Brady to be the face of the newly reinvigorated car rental company. It was a pitch-perfect strategy for an
economy rebounding from the pandemic, Welch writes, one that seized on the public’s fascination with
Elon Musk and the stock market’s willingness to throw money at anything with an EV story. The November IPO valued Hertz at $15.3 billion, more than double the $5.9 billion Wagner and O’Hara paid to buy it out of bankruptcy. Soon, Hertz announced that Stephen Scherr, the recently retired CFO of Goldman Sachs, would join Hertz as its CEO to lead its EV transformation. Chip in a few dollars a month to help support independent cleantech coverage that helps to accelerate the cleantech revolution! By early this year, it was clear the massive bet on EVs was a catastrophe. Musk had slashed
Tesla prices by as much as 30%, sending the value of the electric cars in the Hertz fleet plummeting. Wagner and O’Hara’s plan had exploded in spectacular
fashion. Their idea to radically make over a tired industry has gone silent, and the company is now doubling down on conventional cars with gasoline engines. Hertz shares have fallen 74% since the IPO, the boardroom is engaged in assigning blame, and Scherr has quit, leaving his reputation in tatters. It now appears the order for 100,000 Teslas was hammered out in secret negotiations over nine months, often with Elon Musk himself involved. It initially seemed like a coup for both companies because Hertz got a jump on Enterprise and Avis, while on the day of the announcement in October 2021, Tesla shares surged 13%, pushing its market value past $1 trillion for the first time. Internally, some longtime Hertz managers who had experienced the ups and downs of used car prices over the years warned against making such a huge wager on Tesla. They knew betting wrong on which models to buy is a profit killer for rental companies which rely heavily on strong returns when they eventually sell cars into the used vehicle market. The rental business generates revenue in two ways. First, of course, there is income from renting the cars themselves. But second is selling them to private buyers at a profit after all that lovely depreciation has been accounted for. Despite the warnings from their managers, Wagner and O’Hara pressed ahead. EVs were hot with consumers and investors, and their calculations showed that Hertz wouldn’t just make money renting them at higher rates, but the company would also save on maintenance costs. That’s when the difference between theory and reality hit home. Everything that looked so good on paper didn’t look so good in the real world of business. CleanTechnica readers know 80% of EV charging takes place overnight at home, but business travelers and vacationers don’t want the hassle of managing the charging piece of the puzzle. Rudy Gardner, president of Teamsters Local 922, which represents Hertz workers at Dulles and Reagan National airports, told Welch that travelers would arrive at those Hertz locations to find that Teslas were the only vehicles available. “People didn’t want to charge them,” he says. “At the end of the night that’s all we had left, so they’d go to Avis.” While Hertz had installed its own charging network at some airports, at others such as Newark, New Jersey, the local grid infrastructure could not support the number of chargers Hertz needed to get EVs back on the road quickly. Once a Tesla was returned, Hertz employees often had to drive them for miles to find a Supercharger, adding dramatically to the cost of keeping the cars in the fleet. Early in 2023, another warning light flashed. Delays due to repairs were increasing across Hertz’s entire fleet, as were collision costs. Initially, neither Scherr nor anyone else could explain why. It wasn’t for at least another quarter that his team broke down the aggregate data and showed the board that the culprit in both cases were Teslas. With electric motors and drivetrains, Tesla automobiles were indeed cheaper to maintain. The problem was how often they crashed. People who had never driven a Tesla were surprised by the instantaneous acceleration and regenerative braking. As a result, they were constantly running into obstacles or getting rear-ended, sometimes even before they left the rental lot. The Tesla cars in the Hertz fleet got into accidents four times more often than the company’s other vehicles. Unlike major automakers, Tesla doesn’t have an extensive network of franchised dealers to help with service and repair, leaving owners subject to the company’s availability and schedule. Some Teslas in the Hertz fleet were idled for extended periods. “They couldn’t get parts, even simple things like an outside mirror,” says Alex Rojas, the business agent representing Hertz workers for Teamsters Local 222 in Salt Lake City. “They just sat there for weeks not getting rented and not making money.” When Hertz was able to get its Teslas fixed, the repairs were expensive. An Autopilot radar assembly can cost $1,500 to replace and as much as $3,000 to calibrate. Many Teslas had to be junked altogether because a crash could result in a permanent misalignment of the body panels or because the risk of battery damage made them uninsurable. That, combined with the higher rate of accidents than on Hertz’s other vehicles, led to a spike in repair bills. In 2023, Hertz reported the cost of operating its vehicles was $5.5 billion, up 13% from the previous year and 39% from 2021. Then came the Tesla price war initiated by Elon Musk at the start of 2023. Suddenly there were discounts on every car in the lineup. Model Y prices dropped 20%. “I’m obviously a happier and a better buyer at a lower price point than not,” Scherr said on an April 2023 conference call. But what initially seemed like a boon exploded like a
bomb. By October 2023, Tesla had slashed prices several more times. The warnings Wagner and O’Hara had brushed off were proving prescient. Musk’s price cuts forced Hertz to revalue its Teslas and played a major role in a tripling of Hertz’s depreciation costs to $2 billion last year. In the boardroom, frustration mounted. Scherr, drawing on his Goldman schooling in risk management, had come to see the Teslas as nothing more than a bad trade and wanted to dump them quickly. Wagner, who champions EVs almost as loudly as Musk, disagreed. As one of Hertz’s two controlling shareholders, he demanded that the company look at every alternative to “defleeting” the Teslas. For two months, the sides debated until Wagner finally conceded that getting rid of the Teslas was the only option. In December, Hertz reversed course on electrification and began unloading 20,000 EVs, many on its own used-car website. On January 8, 2024, Scherr walked away, saying he hadn’t signed up to preside over such chaos. This is a story about a group of supposedly smart people being devoid of any shred of common sense, and further proof that being rich does not mean someone is smart. If Wagner and O’Hara both went bankrupt, no one would care, but their greed and utter disregard for consequences have set the EV revolution in America back years. The news has been filled with stories about how electric cars are much less reliable than conventional cars but that is a gross distortion of the Hertz experience. In addition, horror stories from people who rented a Tesla from Hertz and got absolutely no introduction about how to operate them or charge them are legion. I know three people who had those types of experiences renting a Tesla from Hertz, None of those cars left the Hertz rental location with more than a 50% charge — one had less than 30%. The owners of Hertz had apparently never driven an electric car and thought they were no different than a Kia Soul or ‘Toyota Corolla — just get in, adjust the mirrors, put it in drive, and go. The upshot is that the Hertz experience has no bearing on what owning an electric car is like. If there is a slowdown in demand for electric cars in America it is largely thanks to the ignorance of Tom Wagner and Greg O’Hara. Congratulations, guys. You made the CleanTechnica Wall of Shame. LinkedIn
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