Why Hertz’s big Tesla deal is such a blockbuster
Tesla became a trillion-dollar company this week after the announcement of a massive deal with Hertz. The rental car company said it would purchase 100,000 Tesla Model 3 sedans by the end of 2022, and that sent Tesla’s stock price north of $1,000 a share. Two days later, Hertz revealed that Uber has committed to renting as many as half of these electric vehicles to its ride-hail drivers. Hertz even recruited Tom Brady to promote its new fleet.
But a week after Hertz announced the deal, Elon Musk said on Twitter that “no contract has been signed yet.”
“Tesla has far more demand than production, therefore we will only sell cars to Hertz for the same margin as to consumers,” the Tesla CEO added. “Hertz deal has zero effect on our economics.” It’s not clear why Musk is pushing back at this point, but it is worth noting that the Hertz deal represents Tesla’s biggest order ever.
“Deliveries of the Teslas already have started,” Lauren Luster, the director of communications at Hertz, told Recode on Monday. “We are seeing very strong early demand for Teslas in our rental fleet, which reflects market demand for Tesla vehicles.”
Assuming everything proceeds as planned, these developments are clearly good for Tesla, and they bode well for the EV industry as a whole. But the other companies involved are making riskier bets. Hertz is spending an estimated $4.2 billion under the assumption that, when its Tesla rentals become available next month, the cars will be so desirable that its customers will pay higher rates for what the company says will be a “premium and differentiated rental experience.” Hertz has said that the cost of renting a Tesla will be “similar” to its premium and luxury car rates, which vary based on pickup location and the reservation date. For reference, renting a Jaguar XF sedan, which costs roughly the same as a new Tesla Model 3, at New York’s LaGuardia Airport costs upward of $300 a day before taxes and fees.
Meanwhile, Uber is offering drivers a small subsidy and discounts on certain charging stations if they agree to pay $334 a week to rent a Tesla from Hertz. The ride-hail company thinks this new rental approach could lay the groundwork for a future, more environmentally conscious business model, despite the fact that the company has a mixed record when it comes to leasing cars to drivers.
To get a sense of how each of these companies will approach the new Tesla rental market, we took a look at the math. Hertz’s deal with Tesla is worth billions, while Uber could spend millions in perks to woo drivers to rent EVs instead of less expensive vehicles. Of course, it will be customers who decide whether these investments pay off for the respective companies.
Tesla is making more than money
Tesla only stands to gain if these bets pay off. The price of the deal is particularly high because Tesla is charging the sticker price on all the Model 3s — currently, a Model 3 starts at $43,990 — even though discounts on bulk orders are more typical in the car rental industry.
There’s more than just money on the table, too. Making Tesla vehicles widely available as rentals and for Uber rides will also introduce the company’s brand to many more potential customers. For example, Tesla famously does not have a marketing department, but it’s getting a lot of attention in Hertz’s latest ad campaign, which shows Tom Brady surrounded by Model 3s.