If ever you wanted proof of the topsy-turvy world we now live in, look no further than the blizzard of excited headlines about the recent car deals brokered by Hertz.
Not long ago, bulk-selling to rental fleets was seen as desperation, an opportunity to offload excess stock at speed. It was an ultimate act of robbing Peter to pay Paul, with the immediate benefit to the bottom line eradicated as poorly treated, basic-spec cars flooded onto the used market, hurting residual values and therefore raising leasing and financing prices.
Yet perversely, as mass- market brands have seized the opportunities of a chip- supply-restrained market to reset their norms, focusing on profit rather than volume and consequently retreating from bulk sales to rental companies, so Hertz has steamed in with headline- grabbing orders, first from Tesla and now from Polestar.
Back in October, Hertz (recovering from pandemic- induced bankruptcy) shared its plans to order 100,000 Teslas. Yet this was greeted warmly on all sides, sending both companies’ valuations soaring, and most notably ticking the car maker’s value over $1 trillion (albeit for it to drop again not long after).
It helped that Tesla quickly followed up by emphasising that it would be selling the cars at full retail price, for an estimated $5bn, but it was still a surprise that any potential impacts on future used car pricing were so readily brushed aside, given that it has yet to crack a million sales a year.
But if that was a shock, it was nothing compared with the ripples caused by Hertz also buying 65,000 Polestars. Established in the minds of enthusiasts the brand may now be and paced over the course of years the order may be, but that’s still a transformative number of orders to have, given that it sold just 29,000 cars in the past 12 months.
Estimates suggest the order value is around $3bn – potentially big enough to underwrite Polestar’s march towards market flotation.
Why can Tesla and Polestar buck the trend of undermining residuals by doing bulk rental deals? They say the rental market gives people an affordable, short-term way to sample electrification, as well as presenting the capabilities of their cars and brands to much wider audiences than could otherwise be reached.
There’s a beguiling logic to that, especially when you consider the challenges of getting people through the doors of dealerships.
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