Tesla-Hertz deal is great news for Carvana Stock

Carvana stock jumped 5% at the start of US trading before slashing gains. Actions in

Hertz
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which also announced a deal to provide up to 50,000 Tesla rentals to Uber drivers, rose 4% before dropping.

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(TSLA) was up 4.2%.

The partnership, which follows a pilot project last month, will see Hertz use Carvana’s online transaction technology and logistics network to improve its vehicle disposal channels. The rental group has traditionally sold its used cars through auctions, direct-to-dealership programs and a strong retail network of 68 locations. The deal with Carvana will allow Hertz to expand into direct-to-consumer sales and reduce its reliance on wholesale distribution, the company said.

“Our new partnership with Carvana will help Hertz provide a technological and scalable channel throughout the lifecycle of our fleet,” said Mark Fields, interim CEO of Hertz.

Carvana Founder and CEO Ernie Garcia added that “the nation’s leading logistics network enables Hertz to expand its retail reach beyond its physical stores and into more than 300 markets. Across the country “.

Hertz, which emerged from bankruptcy at the end of June, announced earlier this week that it would order 100,000 Tesla by the end of next year with the aim of making electric vehicles 20% of its global fleet. It could also indicate that he is about to sell more junk cars.

The rental industry is responsible for buying and selling millions of cars each year, and Zachary Fadem, analyst at Wells Fargo, has estimated Hertz’s US fleet at 400,000 to 500,000 vehicles.

Wells Fargo has estimated that approximately 100,000 Hertz vehicles will be available for sale in the used market each year. Assuming Carvana sells half of it and generates funding and other income of around $ 2,000 per unit, Kadem expects Carvana to reap some $ 100 million in additional gross profit per year.

“We see this morning’s Carvana / Hertz announcement favorably,” Fadem said. The analyst noted that the deal illustrates the power of the company’s platform, opens up a new and potentially consistent offering of newer vehicles with no auction fees, and paves the way for a higher unit economy.

“While details are slim and we expect some new colors on next Thursday’s third quarter call, we see this partnership as a positive catalyst for stocks as the recent underperformance of stocks suggests that investors neglect the main drivers in the long run, ”Kadem said. “Overall, we are optimistic about the Carvana story and see an improvement in the setup in Q3 / FY22.”

Brad Erickson, analyst at RBC Capital Markets, added that Carvana is already facing short-term pressures from supply shortages and could run out of its third-quarter retail units. The Hertz deal will add selection to its inventory and could be a competitive differentiator in the coming year, Erickson said.

For Hertz, Wells Fargo’s analyst team said the deal with Carvana allows the company to move away from its more expensive, more demanding auction model in favor of more efficient and profitable direct-to-consumer sales. .

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