Hertz customers are paying a hefty premium to drive Tesla into the rental car company’s fleet.
At the start of Hertz Global Holdings’ (ticker: HTZ) coverage on Monday, Goldman Sachs analyst Stephen Grabling estimated that Hertz is getting more than $100 a day for Tesla (TSLA) rentals, which are more than just its fleet. The average price for cars in the U.S. is $60 per day.
In November, Hertz said it would buy 100,000 Teslas for delivery by the end of 2022, and Tesla would make up more than 20% of its fleet. Tesla later raised some doubts about the timing of Hertz’s purchase.
The company’s move to buy electric vehicles will prove to be a win-win strategy if estimates of current Tesla rental pricing allow more Tesla’s Hertz to enter the fleet.
Grambling notes that Hertz is benefiting strongly in the used car market while selling vehicles.
“Hertz is effectively selling used internal combustion engine vehicles at higher residual prices to be deployed at Tesla. To date, Tesla has been able to capture the higher pricing (~$100+RPD vs HTZ averaging $60). Tesla will have higher depreciation expense versus ICE vehicles, despite longer useful life (up to four years) and better residual values,” Grambling wrote. “RPD” refers to revenue per day and “ICE” to internal combustion engine.
He assumes that Hertz will pay $42,000 each for its Teslas, keep them for four years and sell them for about $23,500, resulting in total monthly depreciation and interest expense of $458 per car.
For vehicles with internal combustion engines, Grambling assumes that Hertz pays an average of $26,600 per car, keeps them for 18 months, and sells them for $21,000, resulting in a total monthly cost of depreciation and $357 per car. of interest.
Given the high rental rates for its Teslas, the company appears to be doing more than just offsetting the higher cost of having the company EVs.
The Hertz deal could benefit Tesla, as it gives thousands of Hertz customers the ability to effectively test the company’s electric vehicles. So far, there appears to be strong consumer interest.
Hertz did not comment on estimates of grambling Tesla rental-car rates.
Write to Andrew Berry at [email protected]