camila October 26, 2021

SOUTHFIELD, MICHIGAN (BLOOMBERG) – Hertz Global Holdings’ US$4.2 billion (S$5.66 billion) deal with Tesla is about more than just an order for 100,000 cars. It is about vaulting electric vehicles into the mainstream.

Not only does Tesla get a huge order at a premium price, it gets a way for the electric-curious masses to test-drive its Model 3. Hertz, meanwhile, gets to tap into the growing interest in EVs while aligning itself with the industry’s leader and sexiest brand. Tesla will also benefit from exposure in a splashy Hertz advertising campaign starring seven-time Super Bowl champion Tom Brady.

“This is an opportunity not only to fix the business, but also to employ a strategy that allows us to play a central role in development of the modern mobility industry,” Mr Mark Fields, Hertz’s new interim chief executive and former CEO of Ford Motor, said in an interview. “One of our objectives is to lead in the adoption of electric vehicles.”

Investors clearly thought the announcement was bigger than the financial terms alone. The deal, first reported Monday by Bloomberg News, sent Tesla soaring to a US$1.03 trillion valuation and added about US$1.2 billion in market value for Hertz, which is just four months out of bankruptcy protection. Tesla rose 13 per cent to a record US$1,024.86, while the rental-car company gained 10 per cent to US$27.17.

Even in a down US auto market in the third quarter, sales of electric vehicles jumped 60 per cent and accounted for a record 1 out of every 10 sales, according to Cox Automotive. Nearly 40 per cent of US car buyers said they would consider an EV for their next vehicle purchase, according to a recent survey by the Pew Research Center.

“When a lot of consumers think electric vehicle, they think of Tesla, and now if they want to rent one, they’ll think of Hertz,” said automotive analyst David Whiston from Morningstar in Chicago. “Eventually, there will be much more competition.”

Tesla zooms past US$1 trillion market cap after Hertz orders 100,000 cars

Pool of buyers

Hertz picked an ideal time to get in the game, Mr Whiston said, and EV-makers will benefit as well if renters turn into buyers down the road.

“It’s a great way for consumers to get that EV experience for a few days or a weekend trip or a vacation,” he said. “For a lot of them, it will probably be a good experience, which could help them, if they were on the fence, to take the plunge.”

Tesla is in the midst of a vast production push as plants in California and China expand, while factories in Texas and Berlin are set to open this year. Analysts say Tesla, which sold fewer than half a million cars last year, could have the capacity to build 1.5 million EVs next year.

“EV demand continues to go through a structural shift,” Tesla told shareholders in its third-quarter presentation on Oct 20. “We believe the more vehicles we have on the road, the more Tesla owners are able to spread the word about the benefits of EVs.”