The car rental industry is finally catching on to electric vehicles and is quickly becoming a force in the electrification market. But one West Coast operator has been in the EV rental business for three years and opened up about both the challenges and opportunities in this expanding opportunity, which will soon go from niche to mainstream.

Auto Rental News caught up with Jason Kennedy, president of Gateway Auto Holdings. The company exclusively rents electric vehicles in Southern California, and ARN learned about his first-hand experience.

Kennedy rents Teslas specifically — Model X, Model S, and Model 3. He wants his rental operation to be seen as a traditional car rental company, “because that’s what we do; we only rent cars, there’s not a huge mobility movement that we’re creating here, it’s just the propulsion of the vehicle is electric,” he says.

With the vehicle supply shortage, amidst other rising costs, it’s a good time for rental operators, particularly independents, to get into Teslas— as the brand’s one-price system and lack of volume discounts are a closer match to what rental operators are paying for traditional vehicles today. That one price is the same for major car rental companies and smaller operations.

As far as ownership costs and profitability, Kennedy believes that the Model 3, with a higher initial cost, can pencil out against more mainstream vehicles. This comes down to his ability to command a higher daily rate, operator’s savings on maintenance, and the Model 3’s tremendous resale value.

And by running mostly Teslas, he can carry more parts inventory on hand to use as necessary. He does budget for a set of tires, as EVs are heavier and go through them quicker.

Kennedy believes that with less maintenance needs, that EVs can stay in his fleet for longer than the traditional rental lifecycle. He keeps the Teslas in pristine condition, and most renters won’t know the difference between model years. Plus, over-the-air updates constantly refresh the tech and can even manage some repairs.

Gateway’s Rental Process

Kennedy finds that renting EVs allows him to forego the traditional brick-and-mortar office with a counter, an agent, and a key handoff. Gateway mostly follows a contactless rental experience whereby the customer reserves a car online, completes paperwork electronically, and receives remote access to the vehicle after choosing where it should be delivered.

“Electric mobility and the electric rental business — and Tesla specifically — allow you a lot of freedom to do that,” he says.

Kennedy is clearly a fan of Tesla, mentioning their value is largely in the vehicles’ intuitive user experience. “You can basically walk up to them, step in, and drive away with the car,” he says.

The Tesla, with no power button, has a slight learning curve to the average renter, though, meaning the operator needs to teach customers who’ve never been in such a technologically advanced vehicle that it’s intuitive, logical, and can be as simple as they want it to be.

Some may want to get in and drive away, and others may want to get into the weeds with the infotainment system and really experience the vehicle. Either way, “they get you from point A to point B quietly, quickly, and in a nice, clean way.”

“We really want the customer to fully understand the vehicle, and we go through probably more rigorous explanation than needs to happen,” he adds. “Now everyone’s on YouTube, everyone can Google how to start (a Tesla). So there is this part of me that knows that the customers don’t need me to explain everything to them, but I know they appreciate it because they’ve told us.”

The most important thing to educate the car renter on is the vehicle’s safety features, though. For Teslas, users will need to understand how to operate the autopilot technology and all that comes with proper and safe operation of such a feature — especially that the driver is ultimately responsible for the vehicle. Kennedy says he will not enable the more autonomous Full Self-Driving mode.

Renters must carry their own insurance to rent from Gateway. “Because the LDW (loss damage waiver) that we would offer would be either cost prohibitive, or not profitable enough for our small independent fleet, we would need a larger scale to make it profitable and manage that risk ourselves,” he says.

Solving EV Charging

In the early days of gas-powered cars and before gas stations were on every corner, people simply planned their trips strategically around when and where they would need to fuel up.

This infancy stage is where electric vehicles are at now, Kennedy says, noting that we’re gaining ground quickly. A Sept. 2021 Reuters report estimated there are 43,000 public EV charging stations and around 120,000 charging ports in the U.S. This doesn’t account for the home charging stations, either. Now, Kennedy just hopes to see incentives go to the right places.

Speaking of charging, one growing pain Kennedy feels is around receiving vehicles back without a full charge and renting those back out. Regarding gas-powered vehicles, the major rental companies provide a new rental with a full tank, while it varies with independent operators.

“Why would electricity be any different? I like to provide the customer with a full battery as often as I can, but it’s not always possible,” he says, adding that the issue will lessen as more public chargers come online.

Kennedy does include a charge fee per day in the rental contract, and cross references that against the actual cost when returned, reconciling the two and refunding the customer the difference if they used less than the charge.

Kennedy adds that for now, it’s pretty easy to charge them while they clean the vehicle in between customers, which is usually close enough to full to rent out. In the event a vehicle comes back low and there’s not enough time to recharge, Kennedy will bump the customer up to the next available model. “We don’t like to do that, but I’d rather have a happy customer rather than they drive 40 miles and have to charge again already; that’s ridiculous,” he says.

Of course, you don’t want to have too much supply and lose money, which is why he prefers the upgrade. It’s another example of a practice carried over from the major operators that just works well.