In a surprising move, the US car rental giant Hertz has made a significant departure from its previous strategy, choosing to sell around 20,000 electric vehicles (EVs) in response to weakening demand and high maintenance costs.
This shift, initiated in December of the previous year, signals a departure from CEO Stephen Scherr’s 2021 announcement of enthusiastically purchasing 100,000 Teslas. The move comes amidst lackluster growth in the electric vehicle market, with only a 1.3% increase in the last quarter of 2023 in the United States.
Why Hertz is selling all EVs
The sale of the electric vehicle fleet is expected to have a substantial impact on Hertz’s financials, with an estimated cost of approximately $245 million in the fourth quarter. This decision marks a significant shift from the optimism expressed by CEO Stephen Scherr in 2021, raising questions about the viability of electric vehicles in the current market.
The announcement immediately reverberated in the stock market, causing a more than 5% drop in Hertz’s stock value in New York. This downturn follows a negative trend over the past year, with a 32% decline in Hertz’s stock value.
Optimism Amidst Challenges
Despite the immediate market reaction, Hertz remains optimistic about the future. The company anticipates that the sale of a portion of its electric fleet will lead to improved cash flow and profits in 2024 and 2025. Hertz aims for a total free cash flow of $300 million during these two years, foreseeing financial improvements by the end of 2025 through increased daily revenues and reductions in depreciation and operational expenses.
It’s crucial to recall that Hertz faced near bankruptcy in 2020 due to the COVID-19 pandemic’s impact. This new strategic direction represents a significant effort by the company to stabilize and adapt to the evolving demands of the automotive market.
Hertz’s decision raises important questions about the future of the electric vehicle sector and the strategies rental car companies must adopt to remain competitive and effectively meet market demand. As the industry navigates this unexpected turn, it prompts a broader discussion on the resilience and adaptability required to thrive in the ever-changing landscape of the automotive market.
