The Rent-a-Car as Superstar

Envisioning the future of driving usually zeroes in on names like Uber, Tesla, and Alphabet's Waymo. Now add Hertz Global Holdings to the list of prospective automotive revolutionaries.

That's saying something quite ambitious about a company that over its 103-year-history has often been seen as an accessory to big auto makers, conglomerates, and private equity firms -- not to mention that it is still fresh out of bankruptcy. Yet the revamped Hertz has signaled in recent days that it intends to be a player in the automotive future.

First was the announcement Monday that it would make 20% of its fleet electric, agreeing to buy 100,000 Teslas by the end of next year. That would give Hertz a competitive advantage with leisure renters who are curious about Tesla and with business travelers who want to be seen reducing their carbon footprint, Barron's Andrew Bary noted. 

"Since there is a lot of focus on ESG from investors, having 20% of your fleet being electric gives Hertz a stronger ESG investment narrative potentially than others in car rental,"  Hamzah Mazari, a Jefferies analyst, told Andrew. 

Perhaps nearly as important, "Hertz is carving out mindshare in a market not known for first adoption," said Auto Rental News.

Today came more developments. Hertz will supply as many as 50,000 of its Teslas to Uber drivers. Hertz is also teaming up with Carvana, the online used-car dealer, to sell its older vehicles directly to consumers rather than through auctions. That is a deal that Andrew flagged as a possibility back in June. 

The Hertz/Uber alliance is intriguing as it points to a future of autonomous driving. Daniel Ives of Wedbush Securities is excited about what it could mean for Tesla. Today he wrote: 

Taking a step back, we believe this starts to lay the groundwork for the long awaited robotaxi network over the next decade from Tesla, with the Uber/Hertz partnership planting the seeds for where this is all directionally heading in our opinion. With more consumers looking/preferring EVs, when renting a car (Hertz) or taking a rideshare (Uber) we continue to believe this massively expands Tesla's and EVs overall addressable TAM [total addressable market]. 

A critical element of the robotaxi future will be the  logistical platform:  matching riders to vehicles. Rental-car companies with their fleet management experience are well positioned to fill that role. Volkswagen cited these strengths when it was part of a consortium that bought rental car company Europcar this summer. In a conference call in July, Volkswagen Group CEO Herbert Diess said: 

We are not buying a rental car business to own a rental car business, but we think that rental car business is the best starting point to build mobility platforms. …. 

Car rental already has many of the capabilities and skills you will need for the mobility platform. We already have customer contact. We can provide cars in any airport, at the central main stations in many cities in the -- we have the capabilities to run big fleets, to maintain big fleets, to buy cars, to sell cars. And this is why we think a profitable rental car business is the best place to start for a mobility platform.

Hertz might become an attractive takeover target for the same reasons.  With a total enterprise value of roughly $12 billion, excluding asset-backed debt, it would harder to swallow than Europcar, which cost VW $2 billion. Still, the potential that rental-car companies have as mobility platforms could change the way investors think about and value Hertz, as well as its biggest rivals, Avis Budget Group and privately owned Enterprise.

Speaking of the future of autonomous cars, a new episode of The Readback is out today. This season of the podcast is focused exclusively on self-driving. Listen to Episode 3, "The Industry vs. Elon Musk," on Apple Podcasts, Spotify, or wherever else you find podcasts.