Musk spurs confusion saying Tesla’s deal with Hertz isn’t certain — which is news to rental company

November 2, 2021
Musk spurs confusion saying Tesla's deal with Hertz isn't certain — which is news to rental company

Shares of Tesla Inc. tumbled on Tuesday after its CEO and founder Elon Musk tweeted that a contract to sell 100,000 cars to Hertz had not been signed, suggesting the deal had not been finalized.

On Monday, an online group of Tesla enthusiasts tweeted at Musk thanking him for the recent run up in the company’s stock price. His answer sparked confusion: “You’re welcome! If any of this is based on Hertz, I’d like to emphasize that no contract has been signed yet.”

Hertz said that isn’t the case, and said it has already started receiving the first batch of the electric vehicles it ordered.

Shares in both companies have soared since the announcement, so word that the deal might not happen created uncertainty, which the car rental company was eager to dissipate.

“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,” the company told CBC News in an emailed statement.

“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.”

Hertz first announced the deal a little more than a week ago, one of the largest purchases of battery-powered cars in history.

Financial details of the deal — such as how much Hertz was paying per car or the total price — were not revealed at the time. If Hertz were to pay the full $40,000 retail price for each Model 3, it would make the deal worth around $4 billion to the automaker.

No big deal?

Bloomberg Intelligence analyst Kevin Tynan said the deal was nothing to get excited about anyway, describing it as a way for the carmaker to “offload a falling-out-of-favour model to a rental company with no other automaker to buy from.”

The Tesla 3, which was once highly touted, is no longer a huge seller for the company. At its price point of $42,000 US, Tynan says that’s less than the average selling price of $48,000 US per vehicle that Ford, GM and Stellantis (the new owner of Chrysler) sell a car for, on average.

Musk suggested in the same tweet reply on Monday night that Hertz would not be getting a discount and that the deal was inconsequential to his company’s bottom line.

“Tesla has far more demand than production, therefore we will only sell cars to Hertz for the same margin as to consumers,” Musk’s tweet continued. “Hertz deal has zero effect on our economics.”

Bill Selesky, a senior analyst with Argus Research, suggests Musk knows what he is doing and is trying to wring as much as he can out of Hertz.

“Hertz, if they do a deal with Tesla, will instantly be recognized as part of the EV revolution, not the problem,” Selesky said.

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