Tesla Inc (NASDAQ:TSLA) shares rallied once again on Wednesday after ridesharing giant Uber Technologies Inc (NYSE:UBER) announced a new partnership with Hertz Global Holdings Inc (OTC:HTZZ) to offer 50,000 Tesla rentals to U.S. drivers.
The latest Uber news is one of several ways Tesla’s partnership with Hertz is creating value for the electric vehicle pioneer, according to DataTrek Research co-founder Nicholas Colas.
On Tuesday, Colas said at first glance, the market’s reaction to Hertz’s order of 100,000 Tesla Model 3s may be surprising to investors who remember when General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F) and other auto companies owned Hertz, Avis Budget Group Inc. (NASDAQ:CAR) and other rental companies, which created very little value for shareholders. However, Colas said there are at least our reasons why the Hertz deal is boosting Tesla’s stock.
4 Reasons The Stock Is Moving: First, despite its $1 trillion valuation, Tesla’s business is still relatively small compared to Ford, GM and others. Colas said the 100,000 vehicle orders will lock up a significant portion of Tesla’s production in the next year at a high-margin selling price of $42,000 per vehicle.
Second, the partnership with Hertz will allow car renters to get behind the wheel of a Tesla for the first time. These rentals can essentially serve as test drives that may convince more people to buy the cars, Colas said.
Third, Hertz’s large national network of locations could be helpful as Tesla grows its number of charging stations. Colas said Hertz’s airport locations may be particularly convenient locations for business travelers to leave their cars to charge when they are out of town.
Finally, Colas said Hertz and other rental car companies missed the boat on ridesharing disruption, but partnering with Tesla and other next-generation auto tech companies can help rental companies make sure they are well-positioned for the next major disruptor: autonomous vehicles.
“Tesla/Hertz 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,” Colas said.
Benzinga’s Take: With business booming, the only question mark these days when it comes to Tesla is its valuation. Tesla shares trade at 20.9 times sales, more than double the multiple of all the other trillion-dollar S&P 500 tech companies other than Microsoft Corporation (NASDAQ:MSFT) (13.9).