Hertz Global had one of its worst days on record Thursday, with shares dropping 24 percent after the company posted a bigger-than-expected quarterly loss.
The news highlights Hertz’s struggles with its electric vehicle (EV) rental business, which seemingly forced a change in its CEO.
The company is slimming down the business due to weak demand, with plans to sell 10,000 more EVs, taking its total planned sales to 30,000 this year. These EVs were initially bought to be used as car rentals, but there was little interest. Higher repair costs also weighed on the company’s overall fleet maintenance expenses.
The Estero, Florida-based company said it took a $588 million hit in vehicle depreciation costs during the quarter, of which $195 million was related to EVs held for sale.
“Fleet and direct operating costs weighed on this quarter’s performance,” said Hertz CEO Gil West, who took on the top job earlier this month.
Excluding items, Hertz reported a loss of $1.28 per share, well above Wall Street’s expectations of a loss of 44 cents per share.
The new CEO is a former chief operating officer of Delta Airlines and GM’s Cruise. Hertz’s previous CEO, Stephen Scherr, joined Hertz in 2022 after the company recovered from bankruptcy and started to make a big bet on EVs. He previously served as chief financial officer at Goldman Sachs.
Peer Avis Budget Group shares dropped 7 percent. Both Hertz and Avis lost about half of their market value this year.
Hertz had spent $250 million on a vast EV fleet that consumers didn’t want to rent. The company, under its previous CEO, was forced to sell them at a steep discount in a market with little consumer interest.
In late 2021, Hertz announced plans to order 100,000 Tesla Model 3s, aiming to build the largest EV rental fleet in North America. Shortly after his appointment, then-CEO Mark Fields revealed intentions to purchase 65,000 cars over five years in a $3 billion deal with Swedish EV company Polestar. However, Hertz paused its plans for Polestar EVs in February.
Last year, the company said: “This morning, [Hertz] was recognized by The White House for our efforts to expand access to electric vehicles across the country. Demand for EV rentals is growing and we’re here to help our customers electrify their travels.”
Some of the problems with EVs are: a higher upfront cost, a higher depreciation rate, and 25 percent more expensive insurance. Recharging can also be very time-consuming and finding available chargers at charging stations can be problematic.
Under rental conditions, with the need to search for charging stations and be able to travel long distances, EVs could not win consumers’ trust in their first real-world test.
In January, Hertz said it would sell off one-third of its global rental electric vehicle fleet, or about 20,000 EVs, and replace them with gas-powered cars to meet customer demand. The company cited customer demand, pricing, and maintenance, among other factors, for uncertainty in maintaining its EV fleet.
A November 2023 study by Consumer Reports found that EVs were often less reliable than internal combustion engine vehicles, where manufacturers such as Toyota, Honda, and Subaru have had decades to engineer cars and trucks with high-reliability standards. The report revealed that EVs have 79 percent more problems than gas-engine cars.
A poll from Yahoo Finance and Ipsos in October 2023 found that 57 percent of Americans are not interested in purchasing an EV, citing price, travel range, and available charging stations as their major concerns.
Reuters and Aaron Pan contributed to this report.
