Hertz orders 100,000 Tesla vehicles for end of 2022; Tesla's worth reaches $1 trillion

Hertz Global Holdings Inc., barely four months out of bankruptcy, said it has placed an order for 100,000 Teslas in the first step of an ambitious plan to electrify its rental-car fleet.

The cars will be delivered over the next 14 months, with Tesla Inc.’s Model 3 sedans available at Hertz locations in major U.S. markets and parts of Europe starting in early November, the rental company said in a statement. Customers will have access to Tesla’s network of 3,000 superchargers, and Hertz said it is also building its own charging infrastructure.

It’s the single-largest EV purchase ever, and represents about $4.2 billion of revenue for Tesla, people familiar with the matter told Bloomberg. While rental companies typically demand big discounts from automakers, the size of the order implies Hertz is paying close to list prices.

News of the deal sparked a surge in Tesla's stock price, giving the automaker a market valuation north of $1 trillion. In Monday Nasdaq trading, the company's shares closed at $1,024.86, up 13 percent, giving the EV maker a market cap of $1.027 trillion.

Earlier this month, Hertz named former Ford chief Mark Fields as interim CEO.

“How do we democratize access to electric vehicles? That’s a very important part of our strategy,” Fields told Bloomberg. “Tesla is the only manufacturer that can produce EVs at scale.”

The electrification plan eventually will encompass almost all of Hertz’s half-million cars and trucks worldwide and is the company’s first big initiative since emerging from bankruptcy in June. The deal also signals that Hertz’s new owners, Knighthead Capital Management and Certares Management, are intent on shaking up an industry dominated by a handful of large players who are typically slow to change.

Tesla's market value reached $1 trillion by midday. There was no early movement in Hertz, trading over the counter ahead of its relisting on the Nasdaq Stock Market.

“The $1 trillion mark leaves Tesla creditors with unprecedented equity cushion for a junk-rated issuer,” said Bloomberg Intelligence credit analyst Joel Levington.

The valuation milestone comes after S&P Global Ratings on Friday upgraded Tesla’s long-term rating to BB+ from BB.  The ratings agency said it expects the company’s deliveries and earnings to remain strong over the next few quarters.

“S&P’s recent upgrade of Tesla has the auto manufacturer knocking on high grades door, and we expect the company to cross over to investment grade within the next 12 months, opening up the potential for further financial product offerings,” Levington said.

Boxing out rivals

By locking up so much of Tesla’s production -- the order is equivalent to about 1/10th of what the automaker can produce in a year -- Hertz might box out rivals trying to copy the strategy. Hertz also is breaking with tradition by paying full price for well-appointed cars rather than the typical base-model, heavily discounted sedans that populate rental lots.

Palo Alto, Calif.-based Tesla, which is moving its headquarters to Texas, didn’t reply to a request for comment.

In 2020, General Motors was Hertz’s biggest car and truck supplier, followed by Nissan Motor Co. and Ford Motor Co.

Tesla’s zero tailpipe emissions appeal to rental customers who want a green option or those eager to try out a battery-powered vehicle. Hertz cited a Pew finding that 40-percent of U.S. consumers say they are likely to consider an EV the next time they are in the market for a new vehicle.

Tom Brady hired

Hertz said it hired Tom Brady, the seven-time Super Bowl-winning quarterback, to star in ads showcasing the new Teslas. It also created a dedicated EV website offering free charging through the end of January. See full story from Automotive News affiliate Advertising Age.

Under Fields, who was CEO of Ford for almost three years until May 2017, the company is looking to EVs as part of a commitment to clean energy. Teslas also are less expensive to maintain and refuel as vehicles with internal combustion engines, and they typically don’t lose as much value in the resale market.

Along with the Tesla rollout, Hertz, the biggest U.S. car-rental company after Enterprise Holdings Inc., is embarking on a broader revamp of its business around mobility and digitization. One component of that will be expedited rental bookings on the Hertz app.

Electrification is the latest turn in Hertz’s wild journey through the Covid-19 pandemic. When demand for rental cars collapsed in early 2020, the company, whose brands also include Dollar, Thrifty and Firefly, was forced to file for bankruptcy and began liquidating its fleet.
Now, 17 months later, Estero, Florida-based Hertz is thriving thanks to a sharp rebound in travel and the global new-car shortage. Day traders have embraced it as a meme stock.

As of June 30, Hertz had $1.8 billion in cash and its debt-to-equity ratio, a key measure of financial health, had improved to 2.4 from almost 10 at the end of 2019, according to an Oct. 15 regulatory filing.

Knighthead, a distressed-debt hedge fund, and Certares, a private equity firm specializing in travel, won the bankruptcy auction for Hertz in May with a $6 billion bid. It already looks like a bargain: The company has a market value of $11.6 billion in over-the-counter trading.