Hertz is selling off approximately one-third of its electric vehicles (EVs) — totaling around 20,000 cars — in a move that will incur a cost of $245 million. The rental car company plans to reinvest the proceeds from the sell-off into purchasing more gasoline-powered cars.

Hertz CEO Stephen Scherr said the declining prices of electric vehicles — particularly those from Tesla, which constitute an 80% majority of Hertz’s electrified fleet — was a primary reason for this shift. In 2023, Tesla cut prices by 30%, which is also bringing down the resale value of its vehicles.

This has impacted rental car companies like Hertz, who estimate how much their cars will be worth when they eventually sell them and calculate a drop in value as a cost. If the decline is more than expected, profit ultimately falls.

“The reality here is that we’re experiencing the consequence of a material price decline in Teslas but in EVs more generally,” Scherr said. “So at the beginning of this year, when Tesla took down the price of their cars, residual price falls, depreciation goes up, that’s obviously a cost to the business.”

Hertz also indicated less-than-expected demand for EV rentals and increased maintenance costs associated with these vehicles further contributed to decision to sell off a portion of its electric fleet.

The company said that rented EVs were involved in more accidents compared to their combustion engine counterparts, despite efforts to mitigate this by limiting torque and speed on electrified cars.

“Collision and damage repairs on an EV can often run about twice that associated with a comparable combustion engine vehicle,” Scherr said.

Compounding this problem was Tesla’s unwillingness to give Hertz volume discounts on replacement parts like other automakers have, further driving up expenses on EV repairs.

Hertz initially aimed to convert 25% of its fleet to electric by 2024, though the current divestiture suggests a reevaluation of this goal. However, the company emphasized that it remains committed to incorporating electric vehicles into its fleet in the future.

Hertz clarified that it will not abandon plans to purchase more Teslas, having previously committed to acquiring 100,000 Teslas by the end of the decade. The company also said it remains steadfast in its goals for electrification in Europe, where the aim is to electrify 70% to 90% of its rental fleet come 2030.

“The reality of EVs and Tesla’s being the best-selling car will, at some point, render them the best rental car,” Scherr said. “It’s not yet, so we may have been ahead of ourselves in the context of how quickly that will happen, but that will happen.”