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Recently Bankrupt Car Rental Market Leader Hertz Purchases 100,000 Tesla Vehicles, Spends US$4.2 Billion in Bid for Salvation

published: 2021-11-01 9:30

Leading US rental car provider Hertz Corporation recently ordered 100,000 cars from Tesla for a grand total of US$4.2 billion. The more noteworthy news, however, is that both companies’ stock prices shot through the roof in lockstep.

Although win-wins are rare in business, the aforementioned transaction represents a win on three fronts and the largest single order Tesla had ever received from an enterprise client.

Hertz operates more than 7,000 rental locations around the globe and conducts more than 30 million transactions per year; these figures are enough to solidify its market leadership. However, even the market leader was no match for the impact of the COVID-19 pandemic. The company declared bankruptcy in May 2020, albeit without terminating operations. Instead, it managed to survive while sorting out its finances.

As unbelievable as this may initially sound, a company that had gone bankrupt did in fact buy a fleet of vehicles at a record price, from the automaker with the highest market cap, to boot. Hertz’s undertaking ultimately proved to be correct within no more than one day. The aforementioned “win on three fronts” involves several parties, as indicated below:

Needless to say, the largest winner is Tesla, which set record highs in both sales and revenue this year. The US$4.2 billion transaction this time, then, has essentially established a great foundation for next year’s business. At the same time, after the transaction was made public, Tesla’s stock prices instantly skyrocketed by 12%, resulting in an increase of US$118 billion in Tesla’s market cap, which subsequently surpassed the trillion-dollar mark. Through this, Tesla became the fifth-largest company by market cap in the US.

Investors, on the other hand, undoubtedly represent the second winner arising from the transaction. Tesla has been raising its production capacity nonstop since 1Q21, while the Chinese incident that took place in 2Q21 represented the optimal time for investors to enter the market in the short run. After the incident, Tesla’s stock prices began skyrocketing. Investors who purchased Tesla stocks this year because of the unavailability of Tesla cars are now waiting to replace their existing vehicles.

The third winner is rather unexpected. After filing for bankruptcy protection last year, Hertz spent an astronomical US$4.2 billion. One would naturally arrive at the conclusion that such an expenditure represents an additional blow to Hertz’s already unhealthy finances. However, after the transaction was publicized, Hertz’s stock prices spiked by 10%, resulting in an increase of US$1.17 billion in the company’s market cap – a truly impressive feat considering Hertz’s market cap as of this summer had fallen short of US$8 billion.

This transaction, totaling US$4.2 billion, resulted in a US$119 billion increase in both companies’ market cap, essentially 28 times what the transaction itself was worth. Not only did this transaction propel Musk’s net worth to a new high of US$288.6 billion, but it also saved Hertz. As life in the US gradually returns to normal, many have started asking when it is possible to rent a Tesla.

The first cars within the rental fleet will be delivered in early November

Deliveries for all 100,000 Teslas will have been completely taken within the next 14 months, meaning December 2022 at the latest. The earliest regions to receive said Teslas include most of the US and certain European countries – all of which will have Teslas available for rent starting in early November.

However, rental costs for Teslas may be higher than those for other luxury cars, since car rental companies generally acquire the base models of luxury cars, at a steep discount, no less. Hertz’s fleet of luxury vehicles therefore represents a relatively low cost for the company. However, the aforementioned Teslas were purchased at full retail prices, at an average of US$42,000 per car, and this cost may be reflected in the eventual rental prices.

Tesla has also brought over certain functionalities in the app for Tesla owners to Hertz’s car rental app, thereby allowing Hertz customers to have the same user experience as a regular Tesla owner. Renters can pay extra to use Autopilot and Tesla superchargers. This extra cash flow will benefit Hertz and Tesla alike.

 (Image: Hertz)

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