Hertz EV Move Blows a Breaker
Adapted from GCADA Newsletter
If you're like us, renting a vehicle for either vacation or business travel is one of life's least enjoyable experiences.
Unless you're a former spokesperson and likely a lifetime quadruple-platinum Hertz member, Tom Brady, first, you’ll be challenged to find the counter where you'll join an inevitable long line of fellow renters waiting to check-in. Next, you'll endure the required grilling from an agent regarding insurance, refueling, and similar options. After endlessly signing and initialing your life away to complete extensive paperwork, you schlep your luggage and begin the search for your assigned vehicle. Once you're in the car, you're faced with the daunting task of finding your way out of the airport while making mental notes you hope will help you find your way back.
But wait, there's more. What if we told you your rental experience would include limited vehicle refueling options, a significant time investment to refuel a vehicle adequately, a likely wait to access a fuel source, and the potential that the source is not operational?
We had those thoughts when Hertz recently offered us an EV, and apparently, we're not alone.
Late last week, Hertz Global Holdings' financial filings revealed the company will sell one-third of its rental fleet EVs. The move will result in 20,000 used EVs hitting the market throughout the year. EVs comprise only 11 percent of Hertz's overall fleet, but the company aimed to make up 25 percent of its vehicle inventory by the end of this year. That goal has changed.
The Wall Street Journal (WSJ) reported that Hertz’s stock fell by 4.3 percent, while Tesla's shares dropped by 2.9 percent following the news.
Filings indicate Hertz incurred two significant problems. The first is customer demand. Simply stated, there was not enough. By trimming EV units, “The Company expects to balance supply against expected demand of EVs better.”
The second problem was the underestimated cost of maintaining its EV fleet. While routine maintenance may be cheaper, Hertz found repairing damaged EVs costs twice that of their ICE counterparts. Add unexpected, accelerated depreciation, partly caused by the trend to cut prices on new BEVs, and Hertz was staring down a significant profitability challenge to its rental business model.
While the EV fleet reduction announcement surprised many, just weeks before, there were signs that Hertz was dealing with significant EV issues. During a third-quarter earnings call, “Our fleeting of EVs will be slower than our prior expectations. We know the challenges at hand and are working to remedy that.”
As you may recall, the company filed for bankruptcy during the pandemic and was briefly led by former Ford CEO Mark Fields. During that time, as Hertz looked to reestablish itself and likely take advantage of the EV investment frenzy, the company intended to incorporate EVs into the rental fleet. Fields said at the time, “Electric vehicles are now mainstream, and we’ve only just begun to see the rising global demand and interest.”
Hertz initially went big by ordering 100,000 vehicles from Tesla. Correspondingly, the restructured Hertz saw its stock price jump 10 percent as Tesla’s market cap rose past $1 trillion for the first time. Hertz next ordered 65,000 Polestars and later, in 2022, stated it would add 175,000 General Motors EVs over the next five years.
The commitments were noticed as recently as this past spring, the White House celebrated Hertz’s efforts to promote EVs and its role in “accelerating the EV transition,” citing each would help ensure 50 percent of America's new vehicle sales would be electric by 2030. When asked for comment following the fleet reduction news, The White House told FOX Business a “silver lining” statement that Hertz's move would increase the number of available used EVs eligible for a $4,000 credit under the Inflation Reduction Act.
In reality, Hertz's fleet reduction will result in a $245 million incremental net depreciation expense expected to be made up through the next two years as fleet EVs are replaced with ICE models, according to WSJ. Hertz has adjusted its 2024 outlook accordingly.
