Car rental company Hertz (HTZ) missed Q4 earnings expectations, blaming “headwinds” with its EV fleet. Hertz believes reducing the number of EVs in its fleet will improve profitability.
Hertz is reducing EVs in its fleet to improve earnings
Hertz reported Q4 revenue of $2.2 billion, a 7% increase year-over-year (YOY). Although this was mostly in line with estimates, Hertz’s adjusted $1.36 loss per share significantly missed the consensus of around (-$1.05) per share.
The car rental company posted a net loss of $348 million in the fourth quarter, down from $116 million in net income in Q4 2022.
Hertz’s adjusted negative 17% margin includes $245 million in net deprecation related to Tesla EVs for sale.
Depreciation per vehicle reached $498 per month, more than double last year’s depreciation per vehicle per month of $242.
Despite “solid demand and a stable rate environment,” CEO Stephen Scherr said, “we continued to face headwinds related to our electric vehicle fleet and other costs” in Q4.
The company has already taken steps to address rising costs. Scherr explained that “our planned reduction in EVs and cost base” will improve financials heading into 2025.
Reducing costs through electric models
Hertz announced last month it was selling about 20,000 Tesla EVs with plans to invest some of the proceeds back into gas-powered cars. The move resulted in a $245 million ($787M – $542M) write down.
The car rental giant also said it would miss its goal of hitting 25% EVs in its fleet by the end of the year.
Monday, City Dwellers reported that Hertz planned to delay buying Polestar’s EVs this year. Polestar CEO Thomas Ingenlath told the Financial Times that Scherr contacted him last fall about pausing EV purchases this year.
Hertz signed a deal with Polestar to add up to 65,000 EVs to its fleet through 2027. About 20,000 have already been purchased.
According to the report, Polestar agreed to waive the 2024 order. In exchange, Hertz agreed not to sell Polestar vehicles too early or too low a price.
Hertz and Polestar have “clear intentions” to restart large-scale orders, but whether that will happen in 2025 is unclear. Ingenlath said they would “have to review at the time.”
Despite the earnings miss, Hertz stock is up 8% on Tuesday. Hertz shares are still down nearly 50% over the past 12 months.
City Dwellers’s Take
Hertz shares are likely trending up as the car rental company already announced the planned reduction in EVs.
Investors love to hear about cost-cutting measures as Scherr lays out plans to improve financials. However, Hertz’s business model is still “high risk” as the company owns its vehicles outright.
Hertz bought Tesla’s vehicles at near-peak prices that have fallen significantly since. Although the cost-cutting strategy may seem smart now, Hertz will likely repurchase the cars as the industry transitions to electric. Will they be lower priced, then? That’s what Hertz hopes for.
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