Tesla crosses $ 1 trillion value after deal with Hertz
Hertz said on Monday it would convert more than 20% of its rental fleet to Tesla electric cars by the end of next year, an announcement that has helped propel Tesla’s stock value beyond 1 Trillion dollars for the first time.
The 100,000 Teslas order was a bold move for Hertz, which is just emerging from bankruptcy, and a sign of growing momentum in the shift to electric vehicles.
And that was the last fuel for the soaring Tesla stock price, which gained nearly 13% to end the day at $ 1,024.86, its first close above $ 1,000.
“$ T1 my wild!” Tesla CEO Elon Musk exclaimed on Twitter.
Announcing its order from Tesla on Monday morning, Hertz declined to comment on the value of the deal. Bloomberg said the order would generate around $ 4.2 billion in revenue for Tesla, suggesting that Hertz was paying near the face value of the vehicles. Car rental companies typically require large discounts for large vehicle orders. Monday evening, Mr Musk said on Twitter: âTo be clear, cars sold to Hertz have no discounts. Same price as for consumers.
Hertz customers will be able to lease a Tesla Model 3 compact sedan in select major markets in the United States and Europe from early November. The company said it plans to install thousands of chargers at its sites and is teaming up with quarterback Tom Brady to promote its electric vehicle offerings in a marketing campaign.
“Electric vehicles are now mainstream and we are just starting to see an increase in demand and interest globally,” said Mark Fields, interim general manager of Hertz, who previously led Ford Motor, in A press release.
The deal could benefit both companies, said Michelle Krebs, analyst at Cox Automotive.
âIt’s unique and it really sets Hertz apart from other car rental companies,â she said. “For Tesla, that’s a lot because it exposes Tesla’s electric vehicles to a much wider range of consumers.”
For Tesla, the trillion dollar valuation is the latest sign of how much it has disrupted the auto industry, even as it struggled to make money for nearly two decades. Its market capitalization is greater than that of General Motors, Toyota, Ford, Volkswagen, BMW, Honda and several other automakers combined.
Just four years ago, Tesla struggled with production at its Fremont, Calif. Plant that Musk called “manufacturing hell.” And as recently as March of last year, as the coronavirus pandemic hit the United States, its share price was just over $ 70.
A large order from Hertz could help Tesla balance production and manage changing demand for its more affordable vehicles. In recent quarters, sales of the Model 3 have declined and have been overtaken by those of the Model Y hatchback.
In the coming months, the company plans to start manufacturing the Model Y at factories under construction in Austin, Texas, and Germany near Berlin. The ramp-up of these factories could leave less production at its Fremont factory.
However, sales to rental fleets can have certain drawbacks. Rental sales are normally a low-margin business, and cars usually come back into the market as low-mileage used cars. Hertz and his peers typically hold cars for six to 12 months and then send them to auction houses that supply dealers with used vehicles. Over time, this constant flow of older rental cars can lead to lower demand and lower prices for new cars and can reduce the value consumers get for the cars they want to trade in. Most luxury car brands avoid selling cars to rental companies.
How Tesla and Hertz structured their sales agreement is unclear. Sometimes rental companies buy cars at a discount. They can also lease the vehicles, and sometimes the automakers agree to buy them back at a fixed price. This considerably reduces the initial cost for the lessor and allows it to offer attractive daily rental prices.
But that leaves the automaker at considerable risk, as these used cars will eventually end up on dealer lots with low mileage and at lower prices than new models. If car sales slow, the automaker may end up buying cars back for a higher price than the rental companies paid.
For now, Tesla doesn’t seem to be taking too much of a risk as the global shortage of computer chips limits the number of cars that automakers can produce and has dramatically increased the demand and prices for used cars. At Carvana, a large used car dealership, a 2018 Model 3 with around 30,000 miles sells for around $ 43,000, roughly the same as a new one from Tesla.
Hertz filed for bankruptcy in May 2020, the victim of growing debt and a devastating blow to his business caused by the coronavirus pandemic. But the rapid recovery in the economy and travel provided a lifeline, sparking a bidding war for the company. Hertz came out of bankruptcy four months ago, just as travel began to increase in the United States due to the widespread availability of coronavirus vaccines. The bankruptcy allowed the company to get rid of a large part of its debt, which allowed it to invest in modernizing its fleet.
Hertz stock, which trades in the over-the-counter market, was a winner on Monday, gaining 10%. Hertz announced this month that it plans to list its shares on the Nasdaq, where Tesla trades.
Tesla is the latest member of an elite club of highly regarded tech companies that dominate U.S. markets, breaking the $ 1 trillion mark more than three years after Apple became the first publicly traded company in the United States. United States to do so.
Today, Apple is worth around $ 2.5 trillion, while Microsoft is valued at around $ 2.3 trillion. Amazon and Alphabet – the parent company of search giant Google – each have a market capitalization of over $ 1.5 trillion. Facebook, a relative runt, is worth around $ 930 billion.
Since Tesla opened a new factory in China at the end of 2019, its financial results have continued to strengthen. Its sales continue to increase and it is on track to sell nearly a million cars this year. But it still faces many challenges, including regulatory control of its driver assistance software.
Tesla’s autopilot system, which uses cameras to steer and brake a car with little help from a driver, sometimes fails to see other vehicles, a flaw that has led to a series of accidents , some of which have been fatal. The National Highway Traffic Safety Administration is investigating 12 crashes in which Teslas on autopilot collided with stopped emergency vehicles.
Another regulator, the National Transportation Safety Board, sent a letter to Tesla on Monday berating the company for failing to make the autopilot safety improvements the agency described four years ago.
Tesla has also been criticized for allowing a small group of customers to test drive a more advanced system called Full Self-Driving. The safety bureau criticized the name because the system is unable to drive a car without a driver’s assistance, as well as the practice of letting untrained drivers use unfinished safety software.
Over the weekend, Tesla sent out new Full Self-Driving software to its test customers, but hours later turned it off remotely after customers found their cars were unexpectedly braking and made other maneuvers considered dangerous.
Matt phillips contributed reports.