Hertz loss widens beyond expectations due to EV price cuts

Hertz reported a staggering €1.2 billion net loss in the third quarter, driven mainly by the write-down on its fleet of electric vehicles (€0.9 billion). The results, which fell significantly short of analyst expectations, highlighted the mounting challenges of the ambitious shift towards electrification for rental and leasing companies.

Hertz’s losses stem primarily from a sharp decline in the resale value of EVs, particularly Tesla models, which have suffered significant price cuts over the past two years. The company’s 2021 order of 100,000 Tesla Model 3s and later Model Ys initially bolstered customer satisfaction. However, Tesla’s price reductions eroded vehicle residual values, compounding Hertz’s financial pressures.

Depreciation costs surged 89% year-over-year, reaching €505 per vehicle monthly, further straining profitability. Hertz plans to mitigate these losses by selling 30,000 EVs by year-end, with additional sales extending into 2025.

Hertz CEO Gil West acknowledged the strategic misstep, emphasizing plans to “right-size” the fleet to match customer demand. “We’re aligning our EV inventory with rental preferences, focusing on value optimization,” West said during an earnings call.

Quarterly revenue for Hertz dropped 5% to €2.4 billion, compared to €2.5 billion anticipated by analysts. Following the earnings announcement, Hertz’s stock plunged by 12% during intraday trading before recovering slightly.

Industry-wide challenges

The results mark Hertz’s fourth consecutive quarter of losses, underscoring the financial risks of its EV-centric strategy. The company’s pivot to electric vehicles, which also includes models from Polestar and GM, aimed to position Hertz as a leader in sustainable transportation.

Instead, it has faced higher-than-expected maintenance costs and lower rental rates for EVs than traditional vehicles. The measures extend beyond Tesla. Back in February, Hertz temporarily halted its large-scale agreement with Polestar and announced that it would pause its plan to purchase 65,000 Polestar 2 vehicles.

Competitor Sixt has also scaled back its EV offerings, citing consumer preference for internal combustion engine vehicles. During summer, the German rental giant announced that it would adjust its EV fleet proportion, entailing a return to more ICE models.

Incentives needed

Hertz plans to optimize its fleet mix and reduce exposure to further depreciation to address its financial woes. West noted that the value of the EV fleet had “normalized,” suggesting fewer impairments in upcoming quarters. Hertz remains committed to electrification but will adopt a more measured approach.

As the Belgian Association for Leasing and Car Rental Companies, Renta, pointed out in their latest press conference, the sector needs incentives for the private market to support resale values. However, in most countries, the support is declining. In Flanders, the incentive will be cut on November 23rd.