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Hertz-Tesla Deal Signals Broad Shift to EVs for Rental-Car Companies

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Hertz said in late October that it had placed a 100,000-vehicle order from electric-car maker Tesla, news that sent shares in both companies soaring.

Photo:

BRENDAN MCDERMID/REUTERS

Car-rental customers could soon see more electric-vehicle options on airport lots and other places where they are looking to reserve a ride.

The rental-car industry, long a big bulk-purchaser of new models in the car business, is sharpening efforts to add more battery-powered vehicles to fleets, the latest in a broader global shift among companies embracing greener technologies to cut their greenhouse-gas emissions.

Two of the biggest car-rental firms—

Hertz Global Holdings Inc.


HTZ -2.17%

and

Avis Budget Group


CAR -7.58%

—recently revealed plans to expand their plug-in offerings as the auto industry rolls out more options for drivers looking to avoid gasoline. Privately held Enterprise Holdings Inc., which owns brands such as National and Alamo, also has said it is looking to add more electrics, particularly for clients that are renting or leasing small vehicle fleets.

“If you look now, 2% or thereabouts of all cars manufactured in the U.S. are electric,” Avis Chief Executive

Joe Ferraro

said on an earnings call earlier this month. “That number will go to about 10% in 2025, and maybe north of 30% in 2030. And we’ll play a big role in that.”

This shift is expected to come with challenges. Electric vehicles are typically more expensive, creating higher upfront costs for rental-car companies and potentially raising prices for renters. Additionally, a dearth of public charging networks could prove difficult for leisure travelers, who might not know how and where to charge their cars, analysts and executives say. That frustration could hurt the customers’ experience, they say.

Car-rental companies and their corporate clients are facing greater pressure from Wall Street to make environmental issues a higher priority and to outline steps they are taking to combat climate change, analysts and executives say.

Stocks in companies focused on electric vehicles have shot up in recent months, even though sales of battery-powered models remain low—less than 3% of the total new-car market—and many drivers are still nervous about not having enough places to plug in.

Hertz’s news in late October that it had placed a 100,000-vehicle order from electric-car pioneer

Tesla Inc.

sent shares in both companies soaring, pushing Tesla’s valuation over $1 trillion for the first time. While the two companies are still working out details, Hertz said at the time that the order would increase its mix of electric cars to 20% of its overall fleet.

Avis’s stock also rallied earlier this month when executives said they were working to expand electric options for renters, making it a centerpiece of the company’s efforts to reduce greenhouse-gas emissions by 30% over the next decade. Following the disclosure, Avis’s shares more than doubled that day, the stock’s largest single-day percentage gain ever.

Currently, the pickings are relatively limited for customers looking to rent an electric or hybrid model. For Avis, the share of hybrid and electric vehicles in its global fleet is around 3%, the company said earlier this year.

Chris Haffenreffer,

an executive in charge of Enterprise’s electric-vehicle strategy, said it sees the most potential for electrics in its commercial-rental fleets and fleet-management business, which mostly serves companies looking for longer-term arrangements. These business clients tend to be more cost conscious and see value in the lower maintenance and operating costs afforded by battery-powered vehicles, he said.

Enterprise is still studying how to make electric cars a better fit for leisure travelers, who are more likely to worry about finding enough charging stations, Mr. Haffenreffer said.

The shift to electrics can benefit rental-car companies in other important ways. It helps them shrink their own carbon footprints by integrating more zero-emissions vehicles into their overall rental fleets. That, in turn, can help improve their environmental, social and governance, or ESG, standing with investors, executives and analysts say.

“ESG-associated names like Tesla usually get a much higher multiple,” said

Hamzah Mazari,

an analyst with Jefferies Group who covers the rental-car industry.

Corporate clients also see an advantage because the more clean vehicles they rent, the more they can count the emissions-reduction efforts toward their own ESG ratings, analysts say.

Still, hurdles remain for rental-car providers looking to electrify their lots.

Battery-powered vehicles are typically more expensive than their gas-engine counterparts, requiring companies to make more upfront investment, said

Maryann Keller,

an independent consultant who previously served on the board of Dollar Thrifty Automotive Group, which is now part of Hertz.

They also require rental providers to install charging stations in their parking areas and to educate consumers about how to use the vehicles, she said. A steep learning curve could be a major turnoff for clients, she added.

There is also uncertainty around the resale market and how much an electric model will hold its value, a factor that is particularly important to rental-car companies because they turn over fleets frequently, analysts say.

Enterprise’s Mr. Haffenreffer said developing a more robust network of public charging stations would be critical to broadening EVs’ appeal to renters.

“The conventional wisdom for EV owners right now is that the vast majority of charging is going to happen at home, but for our renters, that charging is going to happen in the public,” he said.

Write to Nora Naughton at [email protected]

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