The Turbulent Journey of Hertz and Its Electric Vehicles: A Series of Missteps and Challenges
The rental car industry continues to experience turbulence, with Hertz, in particular, facing a myriad of challenges. After announcing in January 2023 that it would sell approximately one-third of its electric vehicles (EVs) fleet, totaling around 20,000 units, the company is once again undergoing leadership changes. Stephen Scherr, who joined Hertz two years ago after a nearly 30-year tenure at Goldman Sachs, will be stepping down as CEO, to be replaced by Gil West, the former chief operating officer of Delta Air Lines and General Motors’ Cruise unit.
During the most recent quarter, Hertz reported a significant $245 million loss due to a decrease in value of its EVs sold. While demand for electric vehicles in the United States increased by an impressive 40% in 2022, surpassing one million units for the first time, there were fewer sales than expected as traditional automakers transitioned to EV offerings. Tesla, the market leader in US EV sales, initiated a price war for EVs more than a year ago, resulting in reduced value for both new and used electric vehicles such as those owned by Hertz. The drop in prices significantly impacted Hertz’s bottom line, as it had anticipated earning more money from reselling these vehicles.
However, the primary issue for Hertz was not the electric nature of its fleet but rather its handling of the EVs in general, according to industry analysts. Daniel Ives, an analyst at Wedbush Securities who specializes in the EV market, commented, “The execution and marketing of EVs by Hertz was a horror show across the board. It’s a black eye they couldn’t recover from.”
One challenge for Hertz was that customers who may be interested in purchasing an electric vehicle might not want to rent one while on the road, as they do not always have the ability to charge them efficiently, particularly when traveling. The lack of charging infrastructure at rental locations might deter potential customers, potentially hurting Hertz’s business. Ives explained, “They don’t want to go 20 minutes out of their way at five in the morning to find a charging station.”
In October 2021, Hertz announced it would purchase 100,000 EVs from Tesla to boost its offerings and attract investors following its emergence from bankruptcy. The company later announced plans to buy up to 175,000 EVs from General Motors and 65,000 from Polestar but only managed to accumulate a total of 60,000 EVs in its fleet before changing direction. This represented about 11% of its total fleet.
Moreover, the increased cost and complexity associated with repairing EVs, which is approximately double that of comparable internal combustion engine vehicles, added to Hertz’s financial challenges. Scherr disclosed this issue during an investor call in 2023. Despite the significant loss due to its EV fleet issues, Hertz would have still lost money in both the fourth quarter and full year even without this setback. This contrasted with rival Avis Budget Group, which reported record revenue and the second-best adjusted operating profit in its history during the same period.
Adding to Hertz’s woes, in December 2022, the company agreed to pay $168 million to settle 364 claims related to reporting rental cars as stolen. This led to several customers facing arrests and even imprisonment. Although Hertz stated that a significant portion of this expense would be covered by insurance, it was another blow to the company’s reputation.
It is important to note that Scherr did not make the decision to invest heavily in EV demand from rental customers; his predecessor, Mark Fields, a former CEO of Ford, who was appointed interim CEO in October 2021, just before the Tesla order, made that call. Fields’ predecessor as CEO, Paul Stone, remained as president and COO of Hertz until September 2022. Stone assumed the position just days before Hertz filed for bankruptcy in May 2020. While the entire rental car industry faced hardships due to the pandemic and the decline in travel and rental demand, Avis Budget Group and privately-held Enterprise were able to weather the storm without filing for bankruptcy.
Since its inception, Hertz has been a leading player in the rental car market. However, in 2023, its revenue was 22% lower than its publicly traded rival Avis Budget.
