With its Hertz deal, Tesla continues to defy us skeptics

By Todd Lassa

Contributor

Electric cars are the future. No matter how attracted you are to the charms of the internal combustion engine, it should be obvious by now we need to stop burning fossil fuels ASAP and begin to try and reduce greenhouse gases, if it’s not already too late.

When the transition finally comes, when internal combustion engines are powering only a few collectible cars out for a cruise on warm summer days – and two or three of them may be mine, I’m afraid – it will be right and appropriate to celebrate Tesla’s contribution to the shift. Full disclosure here: I’ve long been a Tesla skeptic, not so much because of the cars, which are undeniably state-of-the-art in their battery chemistry (until solid-state batteries become the order of the day), but mostly because of its CEO, Elon Musk.

From the beginning, I was skeptical about Telsa’s ability to make money. Most of the few profitable quarters since Tesla’s 2012 IPO were from selling zero-emissions vehicle credits in California to automakers whose sales of vehicles were anything but zero-emissions.

Then there’s Musk’s techie hucksterism and his faked astonishment at the value of the company’s shares. He’s long been known for unveiling new products with ridiculously short development schedules. The vehicle is introduced. The stock goes up. And in many cases, the vehicle is nowhere to be seen after it has left the stage. The Cybertruck has been delayed again and again. As has the Roadster. No matter, it seems. The Tesla faithful will wait.

Were it a brand from Detroit or Stuttgart, these delays would be derided. Not so for Musk.

When Hertz announced in October that it has signed a contract to buy 100,000 Tesla Model 3 EVs, one-fifth of its rental fleet, conventional auto business wisdom might have been, “why would Musk do that?”

“Heritage” automakers historically relied on rental fleets to take as much as one-quarter of the production of their mainstream compact and midsize models. A Nissan Sentra sold to a retail customer will make a razor-thin profit for both the automaker and the dealer – and even less when leased to Hertz or Enterprise and then sold after a couple of years at another huge discount, damaging resale values even more for those who drive these models every day. 

Many of the mainstream automakers have been talking for years about reducing their rental fleet business because of the negative effect those sales had on residual values. But when the Hertz-Tesla deal was announced, Tesla Inc.’s shares shot up by 9.6% to make it the latest tech firm to top $1-trillion in market cap. Musk may soon pass Amazon’s Jeff Bezos as the world’s wealthiest human. As I write this, one share is worth $1,096.02, or $1.1 trillion in market cap. GM is at $79.1 billion and Ford Motor is worth $68.53 billion.

Bloomberg News explains that Hertz will pay “full price” for the Teslas, worth $4.2 billion in revenue to the automaker. Citing a Hertz spokeswoman, the report says the Model 3 rental rates will be “similar” to other luxury car rates, and charging will be covered by the rental company through January of next year. Tesla will deliver all 100,000 Model 3s within the next 14 months.

What is interesting about the Hertz-Tesla deal is another individual: Hertz acting CEO Mark Fields. Fields had been the CEO of Ford, but “retired” from the company in 2017. Fields is 60. One of the rumored reasons why he departed Dearborn was because he wasn’t doing enough to message to Wall Street the OEM’s mobility vision.

Seems that what he’s contributed to Tesla’s valuation underscores his mobility vision.

What worries me about the Hertz-Tesla arrangement is this detail, also from the Bloomberg News report: You will be able to re-load your smartphone with the Hertz app, for on-demand access to Supercharger credits and to the car’s Autopilot system.

Autopilot is Tesla’s “autonomous driving” system, which Musk has promoted as the car being able to drive itself. It is not self-driving, and by most accounts it’s less sophisticated than the GMC Super Cruise commercials you might have seen on television, lately with the Queen hand-claps.

In case you rent a Tesla from Hertz and choose to download the Autopilot system on your smartphone, I’m going to give you a piece of advice I would never otherwise give for a rental car: You might want to take the supplemental insurance from Hertz.