Strategy can go wrong - Hertz Story..

Right Company with Great History

Hertz's Journey to Electrification: Pioneering a Sustainable Future in Car Rental

As one of the most recognized names in car rental services worldwide, Hertz has undergone profound transformations since its founding in 1918. From its modest beginnings with a dozen Model T Ford cars in Chicago, Hertz has grown into a global leader in the rental industry. This article explores Hertz's rich history and its bold strategic move towards an electric vehicle (EV) fleet, positioning itself at the forefront of sustainable travel solutions.

Embracing a Century of Innovation

Hertz's journey began when Walter L. Jacobs started renting out Model Ts, achieving annual revenues of about $1 million by 1925. The company went through multiple ownerships and expansions, always aiming to innovate and lead the market. Notably, Hertz was the first to offer airport-based car rental locations and introduced the #1 Club Gold Service to expedite the rental process for frequent travelers, setting industry standards.

Strategic Shift to Electric Vehicles

In recent years, Hertz has embarked on a transformative journey by pivoting towards electric vehicles. This strategic shift is not just an adaptation to evolving market conditions but a proactive approach to lead the push towards sustainability in the automotive industry. The decision to incorporate EVs into their fleet represented a significant step towards reducing carbon emissions and promoting eco-friendly travel options.

In 2021, Hertz announced a landmark decision to purchase 100,000 EVs from Tesla, one of the largest electric vehicle orders ever made. This move was not only a strong commitment to fleet electrification but also a clear signal to the market and other industry players about the inevitable shift towards more sustainable transportation modalities

What went wrong.. Hertz Strategic Team underestimated the challenge

Everything was great in 2022 till EVs were not even delivered. Hertz's strategy of transitioning to an electric vehicle (EV) fleet, while visionary and aligned with global sustainability goals, has encountered several challenges along the way.

1. Supply Chain Issues

Covid-19 disruptions have affected the production of electric vehicles due to shortages of critical components like semiconductors and batteries. As a result, fulfilling large orders like Hertz's purchase of 100,000 Tesla vehicles got delayed.

2. Poor Financial Assumptions

While EVs typically have lower long-term maintenance costs due to fewer moving parts, the initial phase of transition requires significant investment in training staff. Employees across all levels, from mechanics to customer service representatives, need training to handle the unique features and requirements of electric vehicles. Also Transitioning to an electric fleet requires substantial upfront investment not only in the vehicles themselves but also in the necessary charging infrastructure. Controllers in the company underestimated this impact on depreciated costs.

3. Customer Journey & Behaviors

Despite growing interest in EVs, many consumers still exhibit hesitation due to concerns over range anxiety—the fear that an electric vehicle won’t have enough charge to reach its destination. Significant rental cars are used during business trips and social events. Customers are not highly comfortable in this disruption to their routines. Marketers in Hertz under-estimated this need and got biased towards Top Management direction.

And financials went bad ...

Hertz made a strategic mistake by rapidly committing to a large-scale purchase of electric vehicles without fully assessing the readiness of the necessary infrastructure and market conditions. This led to challenges in deployment and utilization of the EV fleet. Additionally, the high upfront investment strained financial resources with high depreciation cost, possibly overshadowing other operational needs. The company also underestimated consumer hesitation regarding EVs, impacting the demand and profitability of the new fleet. This situation illustrates the importance of comprehensive planning and phased implementation in large-scale strategic shifts.