Hertz Cuts Back on Electric Fleet as Demand Falters: Implications for Tesla's Future

Hertz's decision marks a stark reversal from their 2021 announcement to acquire 100,000 vehicles from Tesla, underscoring the softening demand for electric cars in the United States.

The growth of EV sales has significantly decelerated, with a mere 1.3% increase in the last quarter of 2023, according to Cox Automotive.

Car buyers are worried there won't be enough places to plug in or their travel will be too limited by battery range, surveys show. High prices also are turning off consumers.

But consumer demand is just a portion of the total picture. Hertz executives signaled that there are many factors that influenced its decision to pull back on EVs—even before the sale of 20,000 EVs was announced. The instigating factor seems to have been collision and damage repairs costs for rideshare EVs, which were much higher than expected.

Another factor to put Hertz's sale in context is the plummeting value of EVs in generally spurred by Tesla's steep price cuts recently. Hertz's investment in EVs predates the price cuts. In other words, Hertz bought high and is selling low.

This shift in the market has contributed to Tesla's stock dropping by 2.87% on Thursday, reaching a two-month low. The company has witnessed a 13% decrease in its market capitalization over a ten-day period, reflecting a significant loss of $112 billion.

Looking ahead to 2024, Tesla's outlook is mired in uncertainty with analysts split on the company's ability to navigate intense competition, financial pressures, and growth challenges.

According to investment platform moomoo, opinions among the 31 analysts tracking Tesla are mixed, with varying recommendations ranging from "Buy" to "Sell" and divergent price targets for the year's end. The highest price target for the stock is $380, contrasting sharply with the lowest at $85.

In their recent reports, Bernstein and HSBC provide a sobering outlook for Tesla in 2024, particularly regarding profitability.

Bernstein report said 2024 "looks tough" for Tesla, particular in terms of profitability.

"We believe more investors will begin to increasingly question the company's growth narrative, particularly since we believe that Tesla will struggle to grow deliveries 20% in 2024 (and 2025)," it said, noting that's well below Tesla's target of 50%.

Bernstein added that Tesla's FY2024′s margins and earnings per share is set to be "materially" below consensus amid ongoing cost cuts. The investment manager pointed to the impact of price cuts last September and October, predicting a 15.7% potential downside to its gross margins, lower than the consensus of 17.8%.

HSBC's latest analysis offers a "reduce" rating for Tesla, suggesting that the stock's current valuation is overly optimistic given the extended timeline for the realization of Tesla's various projects, including the Dojo supercomputer, full self-driving technology, and the Optimus humanoid robot.

"As good Tesla may be in terms of an EV carmaker (although no longer #1 for volumes), we don't think this is what is driving the valuation. Our concern relates to the uncertainty of timing and commercialisation for Tesla's varied ideas (Dojo, FSD, Optimus, etc) from which it derives a significant share of its valuation," it wrote.