(Bloomberg) — Hertz Global Holdings (OTC:) Inc., barely four months out of bankruptcy, placed an order for 100,000 Teslas in the first step of an ambitious plan to electrify its rental-car fleet, according to people with knowledge of the matter.
It’s the single-largest purchase ever for electric vehicles and represents about $4.2 billion of revenue for Tesla (NASDAQ:) Inc., according to the people, who asked not to be identified because the information is private. While car-rental companies typically demand big discounts from automakers, the size of the order implies that Hertz is paying close to list prices.
The cars will be delivered over the next 14 months, and Tesla’s Model 3 sedans will be available to rent at Hertz locations in major U.S. markets and parts of Europe starting in early November, the people said. Customers will have access to Tesla’s network of superchargers, and Hertz is also building its own charging infrastructure, they said.
The electrification plan, which eventually will encompass almost all of Hertz’s half-million cars and trucks worldwide, is the company’s first big initiative since emerging from bankruptcy in June. And it signals that Hertz’s new owners, Knighthead Capital Management and Certares Management, are intent on shaking up an industry dominated by a handful of large players who are typically slow to change.
Tesla shares surged as much as 4.3% in premarket trading in New York, continuing the automaker’s push toward a $1 trillion valuation. There was no early movement in Hertz, which trades over the counter ahead of its relisting on the Nasdaq Stock Market.
By locking up so much of Tesla’s production — the order is equivalent to about 1/10 of what the automaker can currently produce in a year — Hertz may box out rivals from copycatting the strategy. Hertz also is breaking with tradition by paying full price for well-appointed cars rather than the typical base-model, heavily discounted sedans that populate rental lots.
A spokesman for Hertz declined to comment. Tesla didn’t immediately reply to a request for comment.
In 2020, General Motors Co (NYSE:). was Hertz’s biggest car and truck supplier, followed by Nissan (OTC:) Motor Co. and Ford Motor (NYSE:) Co.
Teslas, with zero tailpipe emissions, will appeal to rental customers who want a green option or those eager to try out an battery-powered vehicle. Hertz may look to EVs because they’re less expensive to maintain and refuel, and they typically don’t lose as much value in the resale market as vehicles with internal combustion engines.
READ: Tesla Target (NYSE:) Hiked at Morgan Stanley (NYSE:) After ‘Extraordinary’ Sales
Earlier this month, Knighthead and Certares brought on Mark Fields, the former chief executive officer of Ford, as interim CEO of Hertz. They’ve also hired Tom Brady, the seven-time Super Bowl-winning quarterback, to star in Hertz ads showcasing the new Teslas, the people said.
Along with the Tesla rollout, Hertz, the biggest U.S. car-rental company after Enterprise Holdings Inc., is embarking on a broader revamp of its business around mobility and digitization, the people said. One component of that will be expedited rental bookings on the Hertz app.
Electrification is the latest turn in Hertz’s wild journey through the Covid-19 pandemic. When demand for rental cars collapsed in early 2020, the company, whose brands also include Dollar, Thrifty and Firefly, was forced to file for bankruptcy and began liquidating its fleet.
Now, 17 months later, Estero, Florida-based Hertz is thriving thanks to a sharp rebound in travel and the global shortage of new cars. Day traders have embraced it as a meme stock.
As of June 30, Hertz had $1.8 billion in cash and its debt-to-equity ratio, a key measure of financial health, had improved to 2.4 from almost 10 at the end of 2019, according to an Oct. 15 regulatory filing.
Knighthead, a distressed-debt hedge fund, and Certares, a private equity firm specializing in travel, won the bankruptcy auction for Hertz in May with a $6 billion bid. It already looks like a bargain: The company has a market value of $11.6 billion in over-the-counter trading ahead of its relisting on the Nasdaq Stock Market.
(Updates with share price in fifth paragraph.)
©2021 Bloomberg L.P.