Polestar's CEO just hinted at a looming problem in the EV market: Tanking used values

• Polestar agreed to let Hertz out of a deal to buy its cars for now.
• Stipulations in the agreement protect Polestar's resale values.
• EV resale values are already delicate.

One piece of a new agreement to pause sales to Hertz by EV-maker Polestar hints at a larger concern in the electric-car market.

As Hertz sheds a third of its electric-car lineup, executives are beginning to worry the deluge of used EVs could tank resale values.

That's why Polestar CEO Thomas Ingenlath told the Financial Times his company only agreed to waive Hertz's requirement to purchase more of its cars only if the rental car giant agreed to some key stipulations.

First, Hertz is required to hold onto its current stockpile of Polestars for "longer than a year," Ingenlath told the FT. Polestar also has the "right of first refusal," Ingenlath said, whenever Hertz wants to take one of their vehicles out of the fleet, potentially preventing a fire sale that could have a detrimental effect on Polestar's current values.

Polestar and Hertz struck a deal in 2022 for the rental car giant to buy 65,000 cars over five years. That deal came on the heels of another landmark agreement to buy 100,000 vehicles from Tesla.

At the time, the deals were a signal that electric cars were on their way to the mainstream, but 2023 proved to be a more difficult year for the EV segment as demand softened and EV resale values collapsed.

Hertz cited these challenges when it began selling off a large portion of its electric vehicle fleet earlier this year. That same day, a slew of Teslas hit Hertz's used car sales website, with many listed at or below the $25,000 price tag that qualifies a used EV for a federal rebate of up to $4,000.

That's slightly below the average for all used EVs, which stands at about $27,800, according to data from Recurrent. Overall used EV prices fell roughly 32% last year, the firm said.

It appears Polestar, which recently lost funding from Volvo, is trying to avoid this outcome for its fleet, as used electric vehicle values are already delicate. EVs tend to depreciate faster than gas-powered vehicles, which can have a detrimental effect on the sale price of new vehicles.

Any threat to EV values spells trouble for startups and legacy car companies alike, as everyone but Tesla is still figuring out how to turn a profit on battery-powered cars. That struggle has only increased in the past year, between shifts in EV buyers and a continuing price squeeze from Elon Musk's Tesla.