In a recent Bloomberg discussion, reporter Craig Trudell delved into the dynamics of the automotive market, particularly focusing on why Hertz has started selling electric cars to reinvest in gas-powered cars. Here’s the full story.
The Background of the Story
Craig Trudell began the discussion with a trip down memory lane to 2021 when Hertz made headlines by announcing a substantial purchase of Tesla vehicles.
Trudell shared that the move coincided with a period characterized by the prominence of meme stocks and an evident attempt by Hertz to leverage this trend for corporate strategy. The announcement played a pivotal role in propelling Tesla to a trillion-dollar valuation.
Hertz Had Fallen Short of Its Ambitious Plans
However, the enthusiasm generated by the initial announcement was short-lived. Trudell shared that as the regulatory filings were unveiled a year later, it became apparent that Hertz had fallen short of its ambitious plans, purchasing significantly fewer Teslas than initially proclaimed.
This discrepancy in execution seemed to have substantial financial implications for Hertz, compounded by Tesla’s subsequent price cuts, according to Trudell.
Pricing of Teslas
The conversation then shifted to the current pricing landscape of Tesla vehicles.
The interview participant pointed out that the Model 3, initially envisioned as a $35,000 car, has seen a substantial reduction in its actual market price. He shared that the continuous price cuts, while stimulating volume growth, have impacted Tesla’s profit margins and generated challenges for rental companies like Hertz.
Trudell addressed the critical question of Tesla’s current and future pricing. He highlighted that a new Model 3, once intended to cost $35,000, is now available at a price close to that figure.
He added that this significant reduction in price, particularly over the past year, has influenced the market dynamics, raising concerns about Tesla’s profitability and the implications for its vehicles’ resale value.
Dynamic of the Used Car Market
The focus then turned to the used car market for Teslas, with an emphasis on the potential depreciation over the next 90 days.
While acknowledging the challenge of predicting short-term market trends, Trudell referred to Hertz’s recent listings, where used Teslas were priced at around $116,000. This substantial depreciation was deemed noteworthy, especially considering these vehicles were part of Hertz’s fleet acquired just a few years ago.
Challenges Faced by the u.s. Automotive Market
The conversation took a broader perspective, considering the unique challenges faced by the U.S. automotive market compared to global trends.
Trudell shared that the dominance of Tesla in the U.S. market was contrasted with the situation in China and Europe, where the repercussions of Tesla’s pricing and market strategy seemed less pronounced. Trudell suggested that the challenges observed in the U.S. might be specific to the market dynamics shaped by Tesla’s influence.
Where the Market Is Heading
In response to the overarching question about the ultimate destination of the automotive industry, Trudell expressed a different view.
While acknowledging the changing landscape and the need for continuous innovation, Trudell shared that the challenges faced by traditional automakers might be more “pronounced” in the U.S. market.
The global perspective offered a more optimistic outlook, with variations in market dynamics and competitive landscapes.
The Struggles of Traditional Automakers
The conversation concluded with a brief exploration of the struggles faced by traditional automakers, including GM and Ford, in their transition to electric vehicles.
Trudell said, “GM and Ford are companies that have a long history of making combustion engine cars. They don’t have a long history of making electric vehicles and they and their battery partners are really struggling to scale up the way that we saw Tesla had with the model 3 years back.”
So what do you think? Is the EV market’s current predicament a temporary setback, or does it signal deeper challenges?
