Hertz announces a shift in strategy by deciding to sell electric vehicles, including Teslas.

• Last week, Hertz announced that it would sell approximately 20,000 electric vehicles, which are mostly Teslas, accounting for roughly a third of its fleet.
• The car-rental company's previously stated goal of converting at least 25% of its entire fleet of cars to EVs by the end of 2024 has been reversed.
• Due to decreased demand, reduced consumer spending, and increased competition in the EV market, several automakers have scaled back their plans to produce more electric vehicles and lowered the prices of their existing models.

Last week, many onlookers were surprised when the car-rental company announced it would sell about a third of its global electric vehicle fleet, reversing course on several big bets it had placed on EVs.

After years of aggressive plans and projections, the auto industry has shifted its position on EVs, with several automakers cutting production of vehicles or reducing prices as inventory has built up in recent months.

In October, announced that they were canceling plans to jointly develop affordable EVs due to slowing demand. In 2023, cut the prices of its cars worldwide to reignite demand as consumer spending slowed and the EV market became increasingly competitive.

Stephen Scherr, CEO of Hertz, stated on "Squawk on the Street" that the company's decision to purchase EVs from Tesla and GM was in response to the reality of matching supply with demand.

Scherr stated that at some point in the future, the popularity of EVs and Tesla's being the best-selling car will make them the best rental car. However, he acknowledged that this may have been an overestimation of how quickly this would occur.

Hertz announced that it would sell approximately 20,000 electric vehicles, and would use some of the proceeds to purchase internal combustion engine cars. Additionally, the company would incur a $245 million incremental net depreciation expense.

Hertz plans to boost its profits by $245 million in the next two years by switching from EVs to internal-combustion-engine vehicles, as stated in a regulatory filing.

In October, the company announced on its third-quarter earnings call that it was slowing its purchase of EVs due to declining MSRP values of EVs, which was affecting the fair market value of its cars. At that time, about 11% of its entire fleet consisted of EVs.

By the end of 2022, Hertz aims to increase its electric vehicle fleet with an initial order of 100,000 Teslas.

The announcement was accompanied by a commercial featuring Tom Brady and parked Tesla Model 3 electric sedans in a Hertz garage.

On CNBC's "Last Call" on Thursday, Wedbush analyst Dan Ives stated that Hertz's decision to sell part of its Tesla fleet is a negative impact on the company. Ives believes that Hertz made a mistake in its calculation of how introducing EVs and Teslas to customers would affect marketing and roll-out.

Hertz's thesis on investing in EVs is that customers would be interested in renting them for various reasons, including trying them out for the first time, avoiding high gas prices, or selecting a more eco-friendly rental car option.

Scherr stated that the experimentation of that sort was taking place, but "not to the extent that justifies maintaining a fleet of this size at this moment in time." Tesla's recent decision to lower the price of its vehicles also influenced Hertz's decision due to the impact on depreciation, Scherr added.

Instead of aiming to have a quarter of its fleet be EVs by the end of 2024, Hertz is now focusing on financial performance and operational integrity, as stated by Scherr.

"An agile company that adjusts, eliminates distractions, and moves forward is smart, according to Scherr," said Scherr.