This week we talk about EREVs, Ford’s CEO, and Hertz.

We also discuss the used EV market, plug-in hybrids, and the Tesla Model 3.

Recommended Book: Not the End of the World by Hannah Ritchie

Transcript

In late-2021, car rental giant Hertz announced that it would purchase 100,000 Tesla Model 3 sedans for its fleet, giving customers the opportunity to drive what had recently, in 2019, become the best-selling plug-in electric car in US history, beating out the Chevy Volt, and then in 2020 become the bestselling plug-in in the world, bypassing the Nissan Leaf.

This was announced about six months after the company went through a massive restructuring, triggered by a bankruptcy filing in May of 2020, which landed Hertz in the hands of a pair of investment firms that purchased a majority stake in the company for about $4.2 billion.

Part of the goal in making such a huge electric vehicle purchase was that it would ostensibly set Hertz up with some of the snazziest, most future-facing vehicles on the road, and it should—if everything went according to plan—also provide them with some advantages, as full-bore EVs have far fewer parts than traditional internal-combustion vehicles, which means a lot less that can go wrong, and fewer moving pieces that need maintenance; which is pretty vital for vehicles that will be driven pretty much continuously.

So the single largest purchase of electric vehicles in history would represent a massive up-front investment, but the hope was that it would both pay off in dollars and cents, maintenance-wise, and help differentiate a brand that had recently been through some very rough patches, business and competition-wise.

Unfortunately for Hertz, that’s not what happened.

Initially, this announcement bumped the company’s stock up by about 40% over the course of just two weeks, but the Model 3s they purchased weren’t as popular as they thought they would be, and though EVs should in theory be easier to maintain than their ICE peers, the relatively low number of specialized repair shops and high cost of relatively scarce spare parts meant that the cars were actually more expensive to maintain than more common and less flashy alternatives.

The company was also dinged by Tesla’s decision to raise its prices around the same time Hertz was making the majority of its purchases, and Hertz decided to start offloading some of the Model 3s it had bought—which only ended up being about 30,000, rather than the originally announced 100,000—selling the cars at a fire-sale discount, in some cases as low as $25,000, which could drop to about $21,000 in areas where EV tax credits applied to used vehicles.

Unfortunately for those who bought them, many of these used Teslas were hobbled by the same issues Hertz was scrambling to address, but couldn’t make work for their business model.

Many initially happy used-Tesla purchasers found that their car’s battery pack was fundamentally damaged in some way, in some cases costing half, or nearly the same as the price they paid for the car, to repair or replace.

This fire sale arrived at around the same time as an overall drop in used EV prices across the market, too, which meant that Hertz’s prices—though at times falling to about half of what a new Model 3 would cost—weren’t as great as they could have been, especially for cars with so many potentially costly problems.

In other words, at this moment the whole of the EV industry was experiencing a bit of a price shock, as most automobile companies selling in the US were introducing new EV models, and they were finding that supply had surged beyond demand, leaving some of them with lots full of cars—especially in parts of the country where EV charging infrastructure still hasn’t been fleshed out, dramatically diminishing the appeal of EVs in those regions.

In early 2024, Hertz’s CEO resigned, mostly because his bet on Teslas and other EVs, hoping to making about a fifth of the company’s fleet electric, didn’t go as planned, and that’s left the company’s stock trading at around 11% of its 2021 high price point as of early September 2024.

To replace him, the company brought in a former executive from Cruise, which is an autonomous car technology company that’s owned by General Motors; another company that’s been trying to figure out the proper balance between investing in where the automobile market in the US is, today, and where it will be in the coming years.

What I’d like to talk about today is another facet of the automobile industry that’s changing pretty rapidly, and a new take on a third option, straddling the internal combustion engine and EV worlds, that seems to be evolving in a compelling—to those running these companies, at least—manner.

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In January of 2023, the CEO of Toyota, who was the 66-year-old grandson of the company’s founder and who had been running the company since the early 2000s, stepped down from his position following a wave of criticism about his outspoken focus on hybrids over electric vehicles.

This company, which in some ways has been defined in recent years by its gamble to release the very well-received Prius, an early hybrid that really leaned into the concept of using a battery to support the activities of the car’s conventional fuel-burning engine, which resulted in a bunch of energy-efficiency benefits, the company had lagged behind its competitors in developing, announcing, and releasing new electric vehicle models to compete with the likes of Tesla—a company that was eating everyone else’s lunch in the EV department, and which was seeing sky-high valuations as a consequence.

Toyota was also being criticized by environmentalist groups for failing to move toward fully electric, zero-emissions vehicles, as while it did have a few EV models on the market, they were seemingly afterthoughts, accounting for less than 1% of the company’s US sales, and the main model, the cumbersomely named bZ4X, experienced a significant safety recall that upended its rollout plans.

Toyota’s new CEO leaned a bit more into EVs, announcing 10 new models in 2023, alongside plans to sell 1.5 million of them per year by 2026. But the company was still selling more cars than any other automaker on the planet, and the vast, vast majority of them were some kind of fuel-burning vehicle.

Despite the change in leadership, then, and the slight tack toward EVs the new CEO made soon after ascending to his new position, the company was still being criticized by environmentalist groups for not doing enough or moving fast enough, and the market seemed to think Toyota was setting itself up for a pretty grim next decade, since it was falling so far behind its competition in terms of supply chains and manufacturing know-how, related to EVs.

This general storyline, though, seems to have changed over the past year.

Yes, it’s still generally assumed that EVs are the future, that the electrification of everything is where we’re headed as a globe-spanning civilization, not just our transportation, but everything moving toward renewables—and that’s for climate-related reasons, but also the economics of renewables, which, once installed and connected, tend to be a lot more favorable, economically, than fossil fuel-based alternatives, almost always.

That said, the aforementioned disconnect between EV availability and investment, and EV demand in the United States has increased over the past year. EV sales are continuing to increase overall, but the huge spike in sales we saw over the past handful of years has tempered into a slower ascension, and many automakers have found themselves with car lots filled with models that aren’t the ones people want—at least not in the requisite numbers to keep lot turnover happening at the rate they like, and in some ways need, to see.

This is not the case in many other countries, I should note.

In China, EVs already made up something like 37% of the country’s total automobile marketshare, the share of new cars sold, in 2023, and across Europe, about 24% of all new cars sold were plug-in electric vehicles that same year.

In the US, the number is still in the single-digits, something like 8% as of Q2 2024, which is a lot bigger than the 5% or so in early 2022, but again, not the kind of rampant growth carmakers were planning for.

Another component of the automobile industry in the US has continued to grow a fair bit faster, though, up more than 30% year-over-year, accounting for up to 9.6% of the country’s total light-duty car marketshare in the second quarter of 2024.

And that slice of the market is the world of hybrids—the component of the car industry that Toyota has bet heavily on, despite antagonism from all sides, over the past several years, and which other automakers like Ford, are pivoting toward, as well; Ford recently announced that it would no longer be releasing a full electric, large SUV in the near-future, and will instead be releasing hybrid models, possibly including plug-in hybrid models.

Plug-in hybrids are like traditional hybrid vehicles, except they have a larger on-board battery pack that can be plugged into an electrical outlet, which allows them to be even more efficient than their traditional hybrid kin; so they're like a traditional ICE vehicle, but with a big, plug-innable battery that helps that engine be more efficient, giving it much better gas mileage.

Another recent development in this space, though—one that’s already pretty well-known in China, but still foreign enough in the US that the CEO of Ford said, after being exposed to the idea for the first time earlier this year, that he thinks it might be the right variation of existing approaches to help the US make the transition to electric vehicles—is called an extended-range electric vehicle, or EREV, and rather than being a hybrid with a suped-up battery, it’s an EV with a built-in, smaller internal combustion engine that serves as an onboard generator, allowing the car to burn fuel to generate electricity, which then charges the car’s giant battery, giving it more range when it’s needed.

The CEO of Ford thought this lined up well with how the American market works, and could help temper the range-anxiety many Americans feels, worrying that the battery packs in their EVs won’t allow them to take road trips, or might run out of juice when they’re partway through their homeward-bound commute at the end of the day; recharging an EVs battery still takes a fair bit longer than filling up a tank of gas, and there are way more gas stations than EVs plug in points around the country, as of 2024.

So if there were a little engine inside their EV capable of giving it a backup charge when necessary, and if that little generator could be fueled using gas that’s widely and relatively inexpensively available across the US, that could in theory help people transition to driving with electricity—which can be generated cleanly, using renewables—most of the time, while having that backup system in place, for when it’s needed, which might be rarely or never.

In late-2023, car-maker Stellantis unveiled their Ram 1500 Ramcharger, which is an EREV that can drive up to 690 miles on its battery pack, but it also includes a 3.6-liter V6 engine that activates when the main 92kW battery is running low on juice; a little generator that burns fuel to recharge the main battery.

One of the big, market-defining questions related to that new Ram and similar models, though, is whether US government regulators will categorize EREVs as zero-emissions vehicles, because, in theory at least, they will at times not be zero-emissions, even though for many people they would probably run on just their batteries most of the time.

This judgement call could impact sales substantially, though, as such determinations help define what would-be customers pay up front, what sorts of tax benefits, if any, they can expect on their purchases, and what sorts of taxes and other fees they’ll pay along the way, for the life of the vehicle.

Whether this topsy-turvy version of the hybrid—the traditional version having a conventional engine with battery backup, and this new riff on the theme defined by a massive main battery with a conventional engine backup—whether it will do well on the market anywhere outside of China has yet to be seen, and there’s still the question of whether other automakers will be able to spin up their own versions of the concept before the market moves again, trends realigning, and more plug-in electricity infrastructure maybe making vanilla EVs more desirable and useable in more parts of the country.

In the meantime, though, we seem to be seeing—rather than the clean transition from ICE vehicles to EVs that some people had hoped for and expected—something more akin to a Cambrian Explosion, where new pressures and innovations are sparking all kinds of interesting offshoot evolutions, and rather than just two options, one supposedly the future and the other supposedly on its way out, we have a half-dozen core themes around which most new vehicles are being built, some of them interchangeable, some not so much, and that suggests we could see more large recalibrations and broad market shifts, alongside a slew of new combinations and innovations, before the previous paradigm fully gives way to whatever ultimately replaces it.

Show Notes

https://electrek.co/2023/01/26/toyota-ceo-steps-down-amid-electric-vehicle-movement/

https://caredge.com/guides/electric-vehicle-market-share-and-sales

https://en.wikipedia.org/wiki/Electric_car_use_by_country

https://cleantechnica.com/2024/08/28/u-s-share-of-electric-hybrid-vehicle-sales-increased-in-2nd-quarter-of-2024/

https://electrek.co/2023/04/07/toyotas-new-ceo-adjusts-ev-plans-but-sticks-to-a-hybrid-approach/

https://www.thestreet.com/electric-vehicles/ford-ceo-says-this-type-of-vehicle-can-be-the-bridge-for-electrification

https://www.wsj.com/business/autos/the-plug-in-hybrid-car-starts-to-win-over-buyers-2155e054

https://en.wikipedia.org/wiki/Plug-in_hybrid

https://fortune.com/2024/06/07/buy-used-tesla-hertz-fire-sale/

https://en.wikipedia.org/wiki/Tesla_Model_3

https://www.roadandtrack.com/news/a60232041/hertz-ceo-resigns-after-big-bet-on-evs-fails-to-pay-off/

https://www.roadandtrack.com/news/a35698039/hertz-potentially-saved-from-bankruptcy/

https://www.roadandtrack.com/news/a38053117/hertz-buying-100000-teslas/

https://qz.com/tesla-hertz-used-electric-cars-evs-damage-glitches-1851482632

https://archive.ph/364dj

https://www.cnbc.com/2023/10/26/hertz-pulls-back-on-ev-plans-citing-tesla-price-cuts-repair-costs.html

https://en.wikipedia.org/wiki/Cruise_(autonomous_vehicle)

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The Call to Salvation and Blessedness - Justin Wolf