Car rental: Cost understanding is critical to e-mobility makeover

By Dominic Tribe, partner and automotive sector specialist at Vendigital  

With electric vehicle (EV) rentals expected to reach two million trips in 2023, are car rental companies ready to meet demand or do they need to electrify fleets more quickly?

Getting the balance right when it comes to the utilisation of vehicles is critical to building a viable business model.

Hertz, currently has 50,000 EVs, which represents about a tenth of its overall fleet, and the company aims to have 25% of its fleet fully electric by 2024.

Similarly, Sixt is planning to electrify 70-90% of its European fleet by 2030, and currently more than 20% is electrified. As market leaders operating globally, both companies have the scale and space to accommodate a sizeable investment in EV infrastructure and bulk orders of new EVs, but what about the rest of the car rental industry?

For the car rental industry as a whole, the market has become much more challenging lately due to increased competition.

New entrants are offering a raft of new options including electric-only or flexible leasing and subscription models that are built around the needs of modern day consumers. Many of these options involve the use of an app, which puts consumers in control over when and where they have use of a car, and for how long.

As well as these agile new entrants, several automotive manufacturers have entered the car rental market, launching attractive and competitively priced subscription models to drive demand for their EV ranges, blurring the lines between lease and rental offers.

Underpinning this shift in the market is a change in consumer habits, particularly in densely populated urban areas, where access to public transport is good.

Many consumers have been weighing up the cost of car ownership for some time and more are now opting for multi-mobility solutions, which allow them to get around on public transport, while using cars only for special trips where the convenience of door-to-door transportation is either preferred or required.

Whereas once car ownership was considered a necessity by many commuters, e-mobility options now offer both value for money and convenience, with on-demand services, whilst bringing greater environmental benefits.

For small and mid-sized car rental companies, the challenge of adapting their business model at the same time as investing in more EVs is significant.

The upfront costs are steep, with the average EV costing between 25-50% more than an equivalent petrol or diesel engine vehicle, and they need to invest in EV charging infrastructure at the same time.

These companies may not be in a position to leverage their buying power to negotiate a discount on new EVs, so they could end up paying a higher price.

For some companies, there could also be a lack of ground space for charging infrastructure and property lease agreements may not permit such installations.

Even the bigger players are feeling the pressure, particularly legacy operators with a large number of petrol and diesel vehicles.

Some could be in danger of getting too far ahead of the curve. For example, in the US, where the proportion of motorists who own an EV is much lower than in the UK, car rental companies have been experiencing problems due to a lack of take-up.

There have been issues with ‘surprise hires’ where customers end up with an EV that doesn’t meet their  needs; leading to negative feedback. Concerns about access to charging infrastructure and the need to download apps can be off putting to some consumers.

For all car rental companies, regardless of size, the residual value of an EV fleet is a complex calculation. Having paid a potentially higher price at the point of purchase, there is less historic data available to accurately predict what the likely resale price is, which could lead to profitability challenges. They also need to factor in the additional time to recharge EVs ready for the next hire, which could mean adding to the size of their fleet to account for any downtime.

To ensure they have a viable business model, most companies currently aim for a fleet utilisation of 80% or more – but will that be achievable as they transition to a more flexible operating model and invest in more EVs? To stay viable, they will need to strike the right balance between vehicle utilisation, meeting customer demand and profitability.

To optimise fleet utilisation, data visibility surrounding the total cost of owning and maintaining an EV fleet, right through to the point of resale, will be vital. While transitioning their fleets, companies should invest in data capture and consider introducing a dynamic pricing model offering motorists extra features or discounts as an incentive for selecting a specific category of vehicle, such as EVs, with the aim of balancing demand.

Maintaining a focus on ease of use for consumers in areas such as journey planning is critical. Machine learning could be used to train algorithms that channel customers to an EV or non-EV based on their answers to questions such as how much mileage they are planning to do.

For example, a customer planning to do 200-mile roundtrip, may not realise that a specific model of EV would allow them to cover up to 300 miles without recharging the battery; saving them a significant sum in fuel costs.

As EV leasing and subscription models continue to evolve, early user experience will provide vital intelligence. Based on this information, operators will be able to shape e-mobility solutions to meet their demands.

For example, if a lack of charging infrastructure proves to be a barrier to take up, then partnering with a chain of battery charging stations could reassure motorists and give them seamless access to services when needed.

The car rental industry is transforming rapidly, bringing risks and opportunities for businesses of all sizes.

Customer data and cost understanding are key to staying viable and mapping the way to the e-mobility future.