The deal is worth around $4bn and means Tesla will sell 100,000 of its Model 3s to Hertz.
News of the deal meant Tesla’s shares jumped by as much as 14.9% to $1,045.02 making it the world’s most valuable automaker, according to Reuters calculations.
The American electric car company joins Microsoft, Facebook, Apple, Amazon, and Alphabet US firms who have broken the $1 trillion mark.
Even Elon Musk, Tesla’s chief executive, was surprised by the surge in valuation. In reply to a comment by Ross Gerber, co-founder of the investment fund Gerber Kawasaki and a Tesla shareholder, Mr Musk tweeted: “Strange that moved valuation, as Tesla is very much a production ramp problem, not a demand problem.”
“Wild $T1mes!” Musk wrote in a separate tweet.
This is a vote of confidence in the EV market, moving the product out of the niche category and into the mass market.
Hertz interim chief executive Mark Fields told Reuters: “Electric vehicles are now mainstream, and we've only just begun to see rising global demand and interest.”
Initially, the 100,000 vehicles will be rolled out across North America as well as parts of Europe from next month.
They will then be added to hire centres around the world with the final purchase expected before the end of next year.
The milestone came after Tesla’s Model 3 became the best-selling car in Europe in September, which is the first time an electric car has topped the rankings.
Elon Musk has set an annual sales growth target of 50%, on average, eventually reaching 20 million vehicles a year. This would be more than twice the volume of current sales leaders Volkswagen AG and Toyota Motor Corp.