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Tesla's market value hits $1 trillion after Hertz agrees to buy 100,000 of its cars

Oct 25, 2021
Originally published on October 25, 2021 4:07 pm

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.

A Tesla Model 3 is on display during the 19th Shanghai International Automobile Industry Exhibition in Shanghai, China, on April 19. Hertz said it was hiring quarterback Tom Brady to promote the Tesla Model 3s it's buying to diversify the rental car company's fleet.
Hector Retamal / AFP via Getty Images

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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AUDIE CORNISH, HOST:

The rental car giant Hertz is buying up Teslas, and not just a few - a hundred thousand of them. As NPR's Camila Domonoske reports, this sent the electric automaker's stock soaring, taking its market cap to a trillion dollars.

CAMILA DOMONOSKE, BYLINE: Hertz wants the public to know that it's going electric. It's got a whole ad campaign around this vehicle purchase.

(SOUNDBITE OF ADVERTISEMENT)

UNIDENTIFIED PERSON: Introducing our all new electric vehicles.

DOMONOSKE: And it's putting real money behind this push. It won't confirm the numbers, but it could cost $4 billion. And when it's done, Tesla Model 3s will make up a fifth of Hertz's fleet. Edmunds analyst Ivan Drury says this is a win for Tesla and Hertz.

IVAN DRURY: This is, like, crazy marketing for them on both ends. Both companies are going to benefit from this.

DOMONOSKE: So what does Tesla get out of the deal? Michelle Krebs of Cox Automotive says obviously there's a lot of revenue.

MICHELLE KREBS: But the other thing it does is it exposes more consumers to EVs and Tesla, specifically.

DOMONOSKE: EVs, or electric vehicles, are still a tiny fraction of the vehicle market. Many people have never driven one and worry about things like range and charging. But once they try one out, Krebs says, they may be much more likely to buy one.

KREBS: It'll give a boost to consumer confidence and acceptance of EVs.

DOMONOSKE: Tesla's stock certainly got a boost from this news, setting new records. Then there's Hertz. The company went into bankruptcy just last year. So why is it dropping billions on new Teslas? Hamzah Mazari is an analyst with Jefferies. He says the rental car industry is actually booming right now, and he says going electric is risky, but it could pay off if Hertz is right that it will appeal to customers.

HAMZAH MAZARI: So a little bit of a bet that consumers will prefer to come to Hertz because they can get a Tesla and they're willing to pay for it, and they can't get that at Avis or somebody else.

DOMONOSKE: Other experts point out that rental companies are kind of desperate for vehicles right now thanks to the semiconductor shortage. And Tesla, unlike most of its rivals, is boosting production, so it has cars to sell. All this means the next time you're renting a vehicle, you'll be more likely to see a battery-powered option, at least at Hertz.

Camila Domonoske, NPR News.

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