The recent decision by rental giant Hertz to sell off 20,000 electric vehicles (EVs), mainly Teslas, and replace them with gas-powered cars is expected to have ripple effects on the perception and second-hand market of EVs. Hertz, as the largest U.S. fleet operator of EVs, attributed the move to high repair costs and weak demand for the electric vehicles in its rental offerings.

Analysts and industry experts believe that this sell-off will impact the second-hand market for EVs and may dissuade potential buyers, especially at a time when borrowing costs are rising. Karl Brauer, an analyst at used-car aggregator iSeeCars.com, points out that the larger impact is the perception hit to the technology, stating, “Mainstream consumers are already hesitant to buy an EV, and this news only supports their concerns.”

The higher repair costs associated with EVs are attributed to a lack of expertise in handling such vehicles and challenges in obtaining replacement parts due to their relatively new status in the market. Hertz CEO Stephen Scherr highlighted elevated costs caused by damages to certain EVs, particularly Teslas. He also mentioned that Tesla did not offer discounts on bulk purchases of replacement parts, unlike other automakers.

Additionally, concerns arise from user errors, prompting Hertz to limit torque and speed on the EVs and offer them to more experienced users. CEO Scherr explained that this was done to ensure easier rides after certain renters had front-end collisions.

A survey by nonprofit Consumer Reports revealed that EVs from the past three years had 79% more problems than conventional cars, indicating growing pains for both startups and legacy automakers new to EV technology. Insurance challenges arise as some EVs have no feasible way to repair or assess slightly damaged battery packs, leading to insurance write-offs and higher premiums.

The sell-off by Hertz underscores a broader shift in the EV landscape, with legacy automakers pulling back production plans as demand slows. EV sales growth in North America is expected to slow to about 27% in the current year, compared to a robust 72% in 2023, according to market research firm Canalys.

Hertz’s potential need to dispose of EVs at significant discounts, considering higher mileage and visible damage, could impact the second-hand market. Prices for used Teslas, currently listed as low as $21,000, may further lower the overall value of used EVs, which has already seen a 33.7% drop between October 2022 and October 2023, according to iSeeCars data.

However, experts suggest that Hertz could benefit from a $4,000 tax credit for some used EVs under the Inflation Reduction Act, potentially reducing prices and making them more competitive with gas-powered cars. Some also believe that the high repair costs of EVs are a short-term challenge that will ease as the infrastructure catches up with the transition to electric vehicles. Lynne McChristian, director of the Office of Risk Management and Insurance Research at the University of Illinois, notes that as more EVs hit the road, prices are likely to come down.

Source: Reuters