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.
Financial Results
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).
Stock Performance
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.
Failed EV Strategy
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.
Company Plans
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.
Depreciation Costs
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.”
Conclusion
Hertz’s poor financial performance is a result of its failed bet on electric vehicles and heavy depreciation costs. The company’s new CEO, Gil West, is working to fix the damage by selling tens of thousands of EVs and petrol-powered models. The company plans to finish its fleet changeover effort by the end of 2025 and lower depreciation costs in future quarters.
FAQs
Q: What was Hertz’s adjusted loss in the third quarter?
A: The company posted an adjusted loss of 68 US cents a share in the third quarter.
Q: What was the reason for the loss?
A: The loss was due to the company’s failed bet on electric vehicles and heavy depreciation costs.
Q: What is Hertz’s plan to fix the damage?
A: The company plans to sell tens of thousands of EVs and petrol-powered models, and finish its fleet changeover effort by the end of 2025.
Q: When will Hertz’s depreciation costs decline?
A: Monthly vehicle depreciation will likely be US$350 to US$375 in the fourth quarter and decline after that.
