HERTZ Global Holdings tumbled after the company reported a worse-than-expected loss stemming from the rental car company’s failed bet on electric vehicles (EVs) and heavy depreciation costs that have pummeled earnings for the past year.
The company posted an adjusted loss of 68 US cents a share in the third quarter, more than the 46 US cent average deficit estimated by analysts. Hertz also took a US$1 billion non-cash impairment charge during the quarter, largely due to the lower value of the battery-electric and gas-powered vehicles in its fleet, the company said on Tuesday (Nov 12).
Hertz shares fell as much as 12 per cent as at 11.33 am in New York on Tuesday, the most intraday since Jun 6. The stock had declined 68 per cent this year to Monday’s close.
The results mark Hertz’s fourth-straight quarterly loss, highlighting the toll of the company’s failed strategy to electrify its fleet with EVs from Tesla. New chief executive officer Gil West has been working to fix the damage by selling tens of thousands of those cars along with petrol-powered models it bought at elevated prices.
The EV push tipped the company into crisis starting in the second half of 2023, when Tesla EV prices plummeted and left the company with cars worth far less than it could fetch in the resale market. Repair costs were also higher than expected and customers leased them at lower rates compared to conventional vehicles.
Hertz’s business was slightly weaker in the quarter. Revenue fell 5 per cent to US$2.6 billion in the quarter and revenue per unit per month fell 3 per cent to US$1,567. Meanwhile, depreciation jumped 89 per cent to US$537 a vehicle per month.
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The company has said it plans to sell 30,000 EVs by the end of this year and get to a number that its customers want to rent. West said on the call with analysts that Hertz is close to finishing with its EV programme and matching the size of its fleet with customer demand.
The other part of West’s fix-it job is selling internal combustion vehicles bought when the semiconductor shortage of 2022 pushed up new car prices. Prices remained high after that, as automakers restricted production to boost profits. Those models also drove some of Hertz’s writedown.
The company on Tuesday said it’s on pace to finish its broader fleet changeover effort by the end of 2025. West said on a call with analysts that vehicle pricing levels have normalised, which will enable Hertz to lower depreciation costs to about US$300 a car per month in future quarters. Monthly vehicle depreciation will likely be US$350 to US$375 in the fourth quarter and decline after that.
That still leaves work to be done in 2025, said Chris Woronka, a senior analyst with Deutsche Bank.
“This is a multiyear, big undertaking,” Woronka said. “Next year will be a transition year, but it should end up in a better place than it began.” BLOOMBERG
