Hertz to sell 20,000 EVs in shift back to petrol-powered cars
Detroit | Hertz plans to sell a third of its US electric vehicle fleet and reinvest in petrol-powered cars due to weak demand and high repair costs for its battery-powered options.
The sales of 20,000 EVs began last month and will continue over the course of this year, the rental giant said on Thursday US time in a regulatory filing. Hertz will record a non-cash charge in its fourth-quarter results of about $US245 million ($366 million) related to incremental net depreciation expense.
The dramatic about-face, after Hertz announced plans in 2021 to buy 100,000 Tesla vehicles, underscores the waning demand for all-electric cars in the US. EV sales growth slowed sharply over the course of last year, rising just 1.3 per cent in the final quarter as consumers were put off by high costs and interest rates.
“The elevated costs associated with EVs persisted,” Hertz chief executive officer Stephen Scherr said in an interview. “Efforts to wrestle it down proved to be more challenging.”
Hertz’s shares fell 4.3 per cent to $US8.95 as of 10.01am in New York. The stock declined 32 per cent last year.
Hertz would keep a close eye on EV demand at dealerships and within its own operations to decide whether the company should buy more vehicles, Mr Scherr said. That meant its agreement to buy 175,000 EVs from General Motors over the next four years and a further 65,000 from Polestar may take much longer to complete, he said.
Bloomberg Intelligence senior credit analyst Jody Lurie said: “Hertz recorded elevated costs from its EV fleet in 2H23 [the second half of 2023]. Management said the reversal could boost free cash flow by $US250-300 million in 2024-25 and improve corporate Ebitda [earnings before interest, taxes, depreciation, and amortisation], but we see the reshuffling as material growing pains.”
Hertz plans to use some of the money raised by selling off EVs to buy petrol-powered vehicles. “The company expects this action to better balance supply against expected demand of EVs,” it said in the filing.
The shift back to more conventional cars marks a reversal of a strategy centred on EVs, which the company hoped would fetch higher prices at the counter and hold their value. Tesla’s price cuts over the past year lowered the value of the cars in Hertz’s fleet and with EV sales growth slowing, it is not clear if consumers will have an appetite for them in the used-car market.
Hertz is keen on GM’s plan to sell cheaper EVs, such as a future redesign of the Chevolet Bolt, which sold for under $US30,000 before ending production last year, and a $US35,000 Chevy Equinox that is going into production. Those vehicles could be easier to rent profitably, Mr Scherr said.
“We’re committed to the strategy,” he said. “It will take more time to execute it.”
Earnings boost
The plan to unload EVs should improve Hertz’s cash flow and earnings this year and next. By the end of next year, the company expects improved financial results driven by higher revenue per day and lower depreciation and operating expenses. The company sees incremental free cash flow of as much as $US300 million in the aggregate over 2024 and 2025.
Mr Scherr had signalled this shift would come, saying in October that the company would scale back on EVs, which had made up 11 per cent of its total fleet. Teslas represented 80 per cent of that.
Tesla’s price cuts raised his company’s depreciation costs, Mr Scherr said. EVs also come with higher repair costs compared with the rest of its cars, which have hurt its bottom line and played a big role in missing third-quarter earnings estimates.
“EVs will be slower than our prior expectations,” he said during the company’s third-quarter earnings call.
