Swedish electric automaker Polestar has inked a deal with rental giant Hertz to supply up to 65,000 battery-powered vehicles.
The five-year global deal should represent more than $3 billion of potential revenue for the EV startup, a source told Automotive News.
While car-rental companies typically demand significant discounts from automakers, Hertz is said to be paying closer to sticker price.
The Hertz order is more than double the 29,000 vehicles Polestar sold globally last year. But the Volvo-affiliated brand has ambitious plans to reach annual sales of 290,000 by 2025 and break even in 2023.
Polestar CEO Thomas Ingenlath said the Hertz deal does not change the electric vehicle maker's sales projections.
"It does add strength and confidence to those numbers," he said.
Ingenlath described the deal as a "very good arrangement" for Hertz and Polestar.
"They get a steady and secured supply of premium electric cars," he said, "and we have done very good business at a large volume with no buybacks or related short-term sacrifices."
Tyson Jominy, vice president of data and analytics at J.D. Power, described the Hertz deal as a "seminal moment" for Polestar — helping fund future product development and generating buzz for the emerging brand.
"Automakers right now will make the most money selling to the fleet channel," Jominy said. "Fleet customers are getting desperate for vehicles and will pay full price to get to the front of the line."
For Polestar — a relatively unknown brand — the value of the Hertz deal extends beyond the direct revenue it will generate.
"People trying an electric car for perhaps the first time will be doing it in a Polestar," Ingenlath said.
Indeed. By placing its vehicles in rental fleets, Polestar creates a marketing opportunity that allows people to test drive the product without the need to lure prospective buyers to the brand's sparse retail network.
"Establishing sales to a rental fleet gives Polestar greater exposure to potential retail buyers for their vehicles," said Sam Fiorani, vice president at AutoForecast Solutions. "For a fraction of the cost of building many Polestar stores, the brand gets a huge return in personal experiences and word of mouth."
The Hertz deal also enables Polestar to raise output to a more profitable level faster than had it waited for demand to grow naturally. Sales to Hertz will increase incrementally each year.
"It's a chicken-and-egg paradox where, in the beginning, the number of buyers needed to support production isn't quite large enough for production to be sustainable," Fiorani said.
Polestar vehicles in the Hertz fleet will eventually be funneled into the automaker's pre-owned program and offered for sale through the Polestar retail network.
Hertz plans to buy 65,000 EVs from Polestar.
The Polestar deal is Hertz's second significant pact for EVs.
Last October, the rental company ordered 100,000 Teslas — the first step of a bold plan to electrify its fleet. Hertz's electrification plan, which eventually will include nearly 500,000 cars and trucks worldwide, is the company's first significant initiative since emerging from bankruptcy in June.
Hertz will initially order the four-door Polestar 2 fastback, launched in 2020. The sedans will be available to rent at Hertz locations in Europe this spring, followed by North America and Australia in late 2022.
Hertz CEO Stephen Scherr told Automotive News TV on Monday that diversification of the rental fleet is an important proposition.
“It gives our customers — corporate and individual — an opportunity to ... drive any number of different vehicles,” Scherr said. “Polestar has built a really formidable automobile.”
Hertz expects the EV fleet life cycle to last longer than that of combustion-engine vehicles.
“There’s less maintenance on these cars; there’ll be an ability to re-kit the interior as we go forward,” Scherr said.
For Hertz, EVs also open a “diversity of business channels not limited to consumers,” Scherr said.
That includes with ride-share operators, such as Uber and Lyft.
"Many corporations are also looking to fulfill their objectives on the ESG [environmental, social and corporate governance] front and putting employees in electric vehicles, particularly where they need to rent," Scherr said.
Next year Polestar will launch a Porsche Cayenne-sized crossover. The Polestar 3, built in the U.S. and China, is based on a new all-electric platform developed by Volvo for its next-gen EVs.
Guidehouse Insights principal analyst Sam Abuelsamid said performance-oriented Polestar offers Hertz a "premium EV brand cache."
"It gives Hertz an option for EV enthusiasts who might not be interested in renting a Tesla," Abuelsamid said.
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