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The Tesla (TSLA)-Hertz deal is a "major win-win" for both sides, says Nicholas Colas, co-founder of DataTrek Research.
The hedge fund veteran says the arrangement is a "fascinating case study in how new and old industries still need each other to maximize the impact of disruptive technologies on the one hand and leverage that same technology to remake a stale business model on the other."
Hertz Global Holdings has placed an order of 100,000 Tesla cars in a step towards electrifying its rental fleet. The vehicles are set for delivery by the end of 2022. Charging stations will also be installed.
Shares of Tesla soared on the news earlier this week, pushing the electric vehicle giant's market cap past $1 trillion for the first time ever.
"Hertz locks up a significant part of Tesla’s production over the next year, and at what should be healthy margins," wrote Colas in a note to investors.
"Tesla now has 10 percent of its total future 12-month production capacity spoken for, something which will help it plan plant utilization and optimize for efficient production," said Colas.
He goes on to point out the car rental company has a large footprint in the U.S., including major airports and large cities. Hertz will be a useful partner as Tesla grows the number of charging locations for its electric vehicles.
"While these will be only for rental customers at first, we can see Hertz monetizing “charging as a service” for Tesla owners," wrote Colas.
He points out the U.S. car rental industry missed the "ride-sharing" disruption, but it can "make a comeback" by getting involved with electric vehicle makers working on autonomous driving.
"This, we suspect, is Hertz’s endgame strategy. They know that by being a major EV buyer they will have an edge as these vehicles eventually transition to autonomous driving," wrote Colas.
Hertz Global Holdings just came out of bankruptcy over the summer. The company entered Chapter 11 in May 2020, during the pandemic as economies shut-down amid global lockdowns.