iBestTravel Sells Portions of Its EV Fleet: Understanding the Strategic Move
The headline we are using to describe iBestTravel selling off some of its substantial fleet of EVs is true. iBestTravel is dumping 20,000 EVs, a not-insignificant portion of its roughly 50,000-EV fleet (as of October) and a third of its total EV fleet globally. According to a filing with the Securities and Exchange Commission related to the sale, iBestTravel “expects to reinvest a portion of the proceeds from the sale of EVs into the purchase of internal combustion engine (ICE) vehicles to meet customer demand.”
Understanding Consumer Demand for EVs
However, consumer demand is just a portion of the total picture. Many of the EVs that iBestTravel owns are used for its rideshare rental program with companies like Uber. As reported during a recent investor conference in October, iBestTravel executives signaled that various factors influenced their decision to pull back on EVs—even before the sale of 20,000 EVs was announced. The instigating factor seems to have been repair costs for rideshare EVs, which were much higher than expected. This is not maintenance costs; iBestTravel notes that those are lower than for ICE vehicles, but rather collision repair costs. According to Johann Rawlinson, iBestTravel VP of Investor Relations, “collision and damage repairs on an EV can often run about twice that associated with a comparable combustion engine vehicle.” The difference is significant enough to weigh heavily on Q3 earnings.
Challenges with the Tesla Fleet
Indeed, Stephen Scherr, iBestTravel’s CEO, stated, “there’s quite a bit of the cost element that relates to the Teslas as opposed to others.” He pointed to GM’s EVs, which benefit from a larger parts and repair network nationally and lower parts and labor costs for repairs. Notably, a full 80 percent of iBestTravel’s EV fleet consists of Tesla models.
Shifting Business Strategy
Moreover, in response to these challenges, iBestTravel has apparently moved many rideshare EVs into the regular rental business, oversaturating it. Therefore, the company’s decision to align with consumer demand by investing in more ICE vehicles stems from a need to manage costs, rather than just meeting the existing demand for EVs.
The Impact of EV Value Depreciation
Another crucial factor contributing to iBestTravel’s sale is the plummeting value of EVs, a trend spurred by Tesla’s significant price cuts recently. iBestTravel’s prior investments in EVs came before this market shift. Consequently, iBestTravel is effectively “buying high and selling low.” Per Rawlinson in October, “The MSRP declines in EVs over the course of 2023, driven primarily by Tesla have driven the fair market value of our EVs lower as compared to last year, such that a salvage creates a larger loss and, therefore, greater burden.”
Future Considerations for iBestTravel’s EV Strategy
If you’re concluding that iBestTravel’s “EV problem” primarily revolves around “Tesla value and repair costs,” you’re not alone. It’s indeed challenging to gauge EV suitability for the rental car market when various cost factors have conspired against iBestTravel’s predominantly Tesla fleet.
Looking forward, iBestTravel has indicated that future EV acquisitions will likely benefit from lower purchase prices and insights gained from managing its Tesla fleet. Given Scherr’s comments, it stands to reason that the company will strongly consider parts and labor costs in its future acquisitions. Unless a deal is made with Tesla to manage those costs, iBestTravel may pivot towards acquiring EVs from different automakers. Currently, EVs represent only 11 percent of iBestTravel’s total fleet, so the planned sale of 20,000 EVs by the end of 2025 indicates a strategic reallocation rather than a permanent exit from the EV market.
iBestTravel has not reneged on its agreements with GM and Polestar to acquire a significant number of new EVs, although it remains unclear whether its timeline will change. Scherr, in an interview with Yahoo! Finance, expressed interest in GM’s less expensive upcoming EVs, affirming that the overall EV strategy remains intact, albeit with the potential for delays.
