In an interesting turn of events, Elon Musk tweeted on Monday night that Tesla has not signed a contract with Hertz yet for the 100,000 Model 3 EVs ordered by the rental car giant. Here’s the tweet that likely paused Tesla’s stock rally.
“If any of this is based on Hertz, I’d like to emphasize that no contract has been signed yet. Tesla has far more demand than production, therefore we will only sell cars to Hertz for the same margin as to consumers. Hertz deal has zero effect on our economics.”
Despite that, Hertz says deliveries of Tesla cars into its rental fleet are already taking place, so what gives? Talking to CNBC via email, Hertz director of communications Lauren Luster declined to discuss specific details of the agreement, but she said the company is on track to offer 100,000 Tesla EVs by the end of 2022 and that deliveries have already started.
“As we announced last week, Hertz has made an initial order of 100,000 Tesla electric vehicles and is investing in new EV charging infrastructure across the company’s global operations. Deliveries of the Teslas already have started. We are seeing very strong early demand for Teslas in our rental fleet, which reflects market demand for Tesla vehicles.”
The entire situation is a bit confusing because to get the first units delivered now it means Hertz must have ordered the Tesla EVs months ago. That seems to align with interim Hertz CEO Mark Fields’ statement last week about the company starting to talk with Tesla “many months ago” about purchasing the vehicles.
Why does Elon Musk say no contract has been signed yet then? Well, the CNBC report mentions something that could shed more light on this case. That would be the fact that investors have traditionally frowned upon automakers that sell large amounts of vehicles to daily rental fleets.
The reason for that is cars and trucks sold to rental companies are usually done so at a discount, helping automakers reduce inventories and increase total vehicle deliveries. Discounts lead to a lower income, hence why the stock market is not a big fan of this practice. As it turns out, Musk has already addressed that issue in an October 26 tweet that said the cars sold to Hertz have no discount.
So, in the absence of a signed binding contract and discounts, does this mean Hertz has been ordering Model 3 EVs one by one, just like a regular customer? We don’t really know, but we’ll probably hear more about this in the coming days.
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