Written by Brenda Nakalema

Hertz making big bucks from Tesla rentals. Over $100 a day!

Hertz customers are spending big bucks on the opportunity to drive the Teslas in the rental car company’s fleet. An …

Hertz customers are spending big bucks on the opportunity to drive the Teslas in the rental car company’s fleet. An analyst at Goldman Sachs, Stephen Grambling, estimated that Hertz (ticker: HTZ) has been earning over $100 a day from Tesla (ticker: TSLA) rentals, compared to the average $60 dollars a day for the other cars in its fleet.

This might have been the motivation behind Hertz’s decision to purchase 100,000 vehicles meant to be delivered by the end of 2022. A couple of days after revealing its decision to purchase EVs from Tesla, the company went on to reveal that Uber had committed to renting as many as half of its electric vehicles for its drivers.

This announcement did not come without the usual drama associated with all things Elon Musk. The Tesla CEO announced that despite Hertz’s enthusiasm to spread the news, no concrete deal had been struck between the two companies. He sighted the fact that Tesla has a higher demand for its gorgeous EVs than its production capabilities. Musk was quoted as saying, “we will only sell cars to Hertz for the same margin as consumers. Hertz deal has zero effect on our economics.”

The director of communications at Hertz, Lauren Luster, reported that Tesla deliveries had already started and commented on how the company was already witnessing strong early demand for the Teslas in its fleet.

Grambling commented that Hertz is benefiting from the strength in the used-car market as its key strategy when it sells vehicles. This would make Tesla more than 20% of its total fleet. Whether this is a winning strategy for the company is yet to be seen and will largely depend on whether this current trend with customer excitement around the car will last.

“Hertz is effectively selling used internal combustion engine vehicles at higher residual values to deploy into Teslas. To date, Teslas have been able to capture higher pricing ($100 + RPD Vs HTZ average $60). Teslas will have higher depreciation expense vs ICE vehicles despite longer useful lives (up to four years) and better residual values,” Grambling wrote. RPD refers to Revenue per day, and ICE refers to Internal combustion engines.

Grambling’s predictions are based on the assumption that Hertz will pay $42,000 for each of its Teslas, use them for about four years, then sell them for $23,000 each; this estimation takes depreciation and interest per car of about $458.

For cars with internal combustion engines, the assumption he has is that Hertz will pay roughly $26,600 per car, utilize them for about 18 months before selling them off at $21,000 with depreciation and interest expense totalling at $357 per car.

One would indeed be mistaken to think this strategy a loss-making venture, especially after hearing that given the high rates Hertz charges for its rentals, the company appears to be more than offsetting the higher cost of holding EVs.