Hertz is in big trouble, with reported losses amounting to $1.3 billion. Read that again: $1.3 billion.
In its latest income statement, the company reported the total losses for the first nine months of 2024. It remains to be seen how the final income statement will look at the end of the year.
The report also provides some interesting data. Hertz currently has 583,516 vehicles in its inventory, with 550,000 available for rental. This substantial number is one factor contributing to the company’s alarming rate of financial losses.
Rental companies like Hertz generate revenue not only by renting their vehicles but also by selling them at optimal prices once they’ve depreciated. However, the rise of electric vehicles is complicating this aspect of the business significantly.
Used Electric Cars and Their Value
In its earnings report, Hertz highlighted that its fleet has experienced a depreciation of $937 million. It estimates that each car is depreciating at an average rate of $537 per month, which is significantly higher than the $284 per month depreciation reported in the same period in 2023.
The main issue appears to be electric cars. Hertz is undergoing a major renewal of its fleet, which is expected to be completed by 2025. By 2026, the company expects depreciation to stabilize at $300 per month per vehicle, which it believes is much more sustainable.
The most significant challenge for Hertz is in the American market, where the average depreciation per car is $592 per month, compared to just $324 per month in the rest of the world. Bloomberg reports that the company plans to sell 30,000 vehicles and adjust its fleet to align with the realistic prospects of electric car rentals.
In 2021, Hertz placed an order for 100,000 Tesla cars. However, in 2023, the company discovered that its fleet was rapidly losing value. As a result, it had to cancel another order for 65,000 vehicles from Polestar because it was struggling to sell second-hand electric cars at profitable prices.
A visit to Hertz’s digital store, where the company offers electric cars from its fleet, provides insight into its inventory. For instance, Chevrolet Bolts are priced at $15,000 with under 45,000 miles, Tesla Model 3s are available for a little over $20,000, and a Ford Mustang Mach-E GT with around 11,500 miles costs $38,000.
Hertz has consistently highlighted that the costs of repairing its electric vehicles tend to be higher, on average, than those for combustion vehicles. Additionally, the company faced a challenge after Tesla significantly reduced its prices across the board. When the price of new Teslas decreased, the value of Hertz’s fleet was adversely affected.
It’s worth noting that Hertz’s price drops in the U.S. have prompted similar reactions from competitors, reducing the overall value of other electric cars in Hertz’s fleet.
Moreover, the resale value of used electric cars is generally low compared to that of gasoline vehicles. Research suggests that potential buyers are hesitant to invest in a rapidly evolving technology that frequently presents new models with improved range at comparable prices.
This uncertainty impacts the sales of today’s lower-priced electric cars and contributes to a decrease in the average resale price of electric vehicles on the second-hand market as older technology becomes outdated more quickly.
Image | Luca Merz
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