(Bloomberg) -- It wasn’t that long ago that sales to rental fleets were seen as a sign of failure. With the dawn of the electric-vehicle age, that’s changing.
In the past, automakers typically took aging or unpopular models, stripped them of many creature comforts and sold them to the likes of Hertz and Avis at discounted prices. It was a way to keep production lines moving until a freshened version of the car got to market.
Electric vehicles are hot sellers right now, so cutting big deals with Hertz and other fleet buyers isn’t the desperate move that it once was, but it sure is an insurance policy. Both Tesla and General Motors are both cranking up production of EVs over the next several years. If middle market consumers don’t make the switch, both companies and Polestar—the all-electric automaker controlled by Volvo and its Chinese owner Zhejiang Geely Holding Group—will have already secured fleet deals to boost sales and keep building economies of scale.
That insurance plan might be needed. Right now, electric vehicles are 5% of sales in the US. That’s about double what it was last year, but no one in the industry is sure how quickly sales will keep growing. The buyers today are the early adopters, many of whom are passionate about climate change or technology, or just having the newest and coolest car on the block.
The average electric vehicle in the US sells for about $67,000, which is about $20,000 more than average ICE models, which are themselves at record levels. As automakers introduce cheaper EVs — like GM’s Chevrolet Equinox that will start at $30,000 next year and the Chevy Silverado and Ford Lightning pickup that will offer $40,000 versions — that could change. But at the moment even the Kia EV6 starts north of $41,000. EVs are out of reach for most consumers.
Until those sticker prices come down, we’ll see more fleet deals. Hertz alone has already agreed to buy 175,000 EVs from GM over the next five years, along with 100,000 from Tesla and 65,000 from Polestar. If GM sells the same number to Hertz in each year, that rental deal alone would be 3.5% of the 1 million EVs that the company hopes to sell in 2025.
Automakers will probably sell even more EVs to fleets. Fedex said it will buy as many as 20,000 electric delivery vans from GM’s BrightDrop unit in the next several years. Similarly, Ford said in August that it’s sold 8,300 of its E-transit electric vans. Startup Rivian Automotive plans to sell 100,000 electric vans to Amazon.
Avis has made little noise about renting out EVs, but consumers can find a Tesla to rent on its website. Other carmakers will likely sell more of their electrified production to the rental trio of Hertz, Avis and the industry’s giant, Enterprise Rent-a-Car.
Avis and Enterprise should take note if they haven’t already. On the company’s most recent earnings call, Hertz Chief Executive Officer Steve Scherr said that its EVs command an extra $30 to $35 a day at the counter and the company has lower fueling and maintenance costs. He said the resale values are also stronger than they are for many internal combustion models.
When GM and Hertz announced their agreement, GM North America President Steve Carlisle said that car buyers are twice as likely to consider an electric vehicle once they have driven one. Renting them out can prime the market.
And if consumers balk at plugging in, these deals will serve as a safety hatch in case automakers are building more electric models than American drivers want.
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