This is the largest order ever for the company founded by Elon Musk.
After the deal was announced, Tesla shares jumped more than 9.5% to $ 995.75, bringing the company’s value to $ 1 billion (around £ 726 billion) , according to Reuters.
The deal will see Hertz complete its purchases of Tesla Model 3 cars by the end of 2022, while customers can start leasing Tesla’s electric vehicles through Hertz from next month.
The deal is expected to be worth around $ 4 billion (£ 2.9 billion) as each Model 3 has a base price of around $ 40,000 (£ 29,000).
It also tops the list for single company electric vehicle orders.
By becoming a billion dollar company, Tesla joins an elite group of famous companies that have already surpassed the milestone.
The only other publicly traded companies in the United States that have reached a market cap of $ 1 billion so far are Apple, Amazon, Microsoft and Alphabet, the parent company of Google.
Hertz customers will be able to access Tesla’s network of superchargers in the US and Europe – and the rental company has also pledged to install 3,000 chargers by the end of next year.
“We absolutely believe this is going to be a competitive advantage for us,” said Mark Fields, Hertz interim general manager, of the Tesla order.
Speaking to Reuters, Fields added: “We want to be a leader in mobility… Bringing the customer experience to electrified vehicles is a top priority for us. “
Hertz currently owns around 430,000 to 450,000 vehicles worldwide and has said it will work with other companies producing electric vehicles – not just Tesla. Following the latest order, Fields said electric vehicles will account for more than 20% of his global fleet.
Mr Musk’s company is currently struggling to meet a backlog of orders and suffers from supply chain issues, but experts say the deal strengthens the overall status of electric vehicles.