Essay by Eric Worrall
First published JoNova, h/t KN, tony_g, bnice2000, doonman – Customers don’t want EVs: “… eliminate a disproportionate number of lower margin rentals and reduce damage expense associated with EVs. …”
From the Hertz official SEC statement;
Item 2.02 Results of Operations and Financial Condition
Hertz Global Holdings, Inc. (the “Company” or “Hertz”) has made the strategic decision to sell approximately 20,000 electric vehicles (“EVs”) from its U.S. fleet, or about one-third of the global EV fleet. These vehicle dispositions, which were initiated in December 2023 and are expected to take place in an orderly fashion over the course of 2024, will cover multiple makes and models. EVs held for sale will remain eligible for rental within the Company’s fleet during the sales process. The Company expects to reinvest a portion of the proceeds from the sale of EVs into the purchase of internal combustion engine (“ICE”) vehicles to meet customer demand.
The Company’s decision to reduce its EV fleet will result in the recognition, during the fourth quarter of 2023, of approximately $245 million of incremental net depreciation expense related to the sale. This non-cash charge represents the write down of the EVs’ carrying values as of December 31, 2023 to their fair values, less related expenses associated with the disposition of the vehicles. This charge is in addition to the depreciation expense that the Company will report for the fourth quarter in the ordinary course with respect to the remainder of its fleet. Future depreciation expense on the specific vehicles held for sale is expected to be limited to impacts from changes in the vehicles’ condition and general market factors. Any gain or loss associated with the ultimate disposition of any specific EV will be recognized in the period of sale. The Company does not expect this EV fleet reduction and the corresponding addition of ICE vehicles to have a material impact on its asset-backed securitization facilities, nor does it anticipate the need to make additional cash contributions to such facilities as a result of this strategic action.
The Company expects this action to better balance supply against expected demand of EVs. This will position the Company to eliminate a disproportionate number of lower margin rentals and reduce damage expense associated with EVs. The Company will continue to execute its strategy around EV mobility and offer customers a wide selection of vehicles. The Company continues to implement a series of initiatives that it anticipates will continue to improve the profitability of the remaining EV fleet. These initiatives include the expansion of EV charging infrastructure, growing relationships with EV manufacturers, particularly related to more affordable access to parts and labor, and continued implementation of policies and educational tools to help enhance the EV experience for customers. Going forward, the Company will continue to actively manage the total size of its EV fleet, as well as the allocation of EVs among customer segments, including leisure, corporate, government and rideshare.
It is expected that the planned reduction in the EV fleet and reinvestment in additional ICE vehicles will improve Adjusted Corporate EBITDA across 2024, as vehicles are rotated, and in 2025, by which time all of the vehicles included in this plan are expected to be sold. By year end 2025, it is expected that the aggregate two-year benefit to Adjusted Corporate EBITDA related to the sale will approximate the incremental net depreciation expense to be recognized in the fourth quarter of 2023. It is expected that this benefit to the Company’s financial results will be derived from higher revenue per day and lower depreciation and operating expenses related to its remaining fleet. The Company further anticipates that incremental free cash flow generation related to this action will approximate $250 million to $300 million in the aggregate over 2024 and 2025.
The Company expects to report financial results for the fourth quarter ended December 31, 2023 on February 6, 2024. Consistent with expectations, the Company expects to report revenue for the fourth quarter of 2023 in the range of $2.1 billion to $2.2 billion, in line with historical seasonality relative to its third quarter. Adjusted Corporate EBITDA for the fourth quarter of 2023 will be negatively impacted by the incremental net depreciation expense associated with the EV sales plan, and further burdened by higher depreciation expense in the ordinary course as residual values for vehicles generally fell throughout the quarter greater than previously expected. While direct operating expenses per transaction day, excluding collision and damage, will be flat for the quarter and down for the year, expenses related to collision and damage, primarily associated with EVs, remained high in the quarter, thereby supporting the Company’s decision to initiate the material reduction in the EV fleet. The Company expects to report a negative Adjusted Corporate EBITDA (excluding the impact of the non-cash charge related to the EV sales plan) for the fourth quarter in the range of ($120 million) to ($130 million).
The Company’s estimated results for the fourth quarter ended December 31, 2023, are preliminary in nature and subject to change as results for such period are finalized. Estimates of results are inherently uncertain and subject to change, and the Company undertakes no obligation to update the estimated results. The Company’s estimates contained in this Current Report on Form 8-K may differ, perhaps materially, from actual results. Hertz is in the process of finalizing its fourth quarter 2023 financial statements and will discuss actual performance and more details in its regularly scheduled earnings release and conference call, which are planned for February 6, 2024.
The Company cannot, without unreasonable effort, reconcile its forecasted range of Adjusted Corporate EBITDA, a non-GAAP financial measure, to its most directly comparable GAAP financial measure, net income (loss) attributable to the Company, due to the uncertainty and inherent difficulty of predicting the occurrence and the financial impact of items impacting comparability as of the date of this Current Report on Form 8-K. Management uses Adjusted Corporate EBITDA as an operating performance metric for internal monitoring and planning purposes, including the preparation of the Company’s annual operating budget and monthly operating reviews, and analysis of investment decisions, profitability and performance trends. This measure enables management and investors to isolate the effects on profitability of operating metrics most meaningful to the business of renting and leasing vehicles. It also allows management and investors to assess the performance of the entire business on the same basis as its reportable segments.
Source: https://www.sec.gov/ix?doc=/Archives/edgar/data/47129/000165785324000010/htz-20240111.htm
What can I say? Another bad day for EV manufacturers.
I wouldn’t be surprised if Hertz’s $245 million write-off from dumping a third of their EV fleet turns out to be an underestimate, that is only $12,250 estimated loss per vehicle (245 million / 20,000). I mean, who would want a second hand rental EV, which may have been treated harshly, which might even have undetected damage to the battery pack?
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This was not a scientific conclusion but mafe a lot of sense
In 2022 a Ford EV engineer contact told me Ford fellow engineers working an a 2026 model EV declared that Ford was intending to charge1 $10,000 more for an EV than a similar sized ICE, but Ford customers would think the EV was worth $10,000 less than an ice.
As a result, the company would be doomed.
I worked in Ford product development for27 years. Engineers there were always over optimistic about ICE vehicles they were designing. Some were mediocre, to be kind. We use to joke that Edsel engineers thought the Edsel would be big winner. Now (2022) Ford EV engineers are pessimistic about expensive EVs.
I put on mu MBA hat and come to this conclusion
Ford can not stay in business trying selling sell EVs for much more than customers think they are worth. That is the current business plan. This EV transition seems like it will eventually be a good case study for MBA students. The Edsel story and New Coke story are old news.
WARNING – bad joke ahead.
Not many people know this, but General Motors had initially decided that to promote sales of its new EV models to rental fleets, the best route would be to form a joint venture with a major rental car company – in this case Hertz.
In order to name their half of the new joint venture company, GM decided to harken back to the initial success of its now defunct SATURN division and use a planetary name.
So accordingly, the name of the newly proposed joint-venture company would be…(drum roll)…
URANUS-HERTZ.
The proposed joint venture never got off the ground, but the name, in reality, sums up the way that most of us feel about having EV’s forced on us by government mandate, and in dealing with EV’s in general.
Good joke compared with mine
I don’t like anything forced on me.
Not even air bags.
Especially EVs.
Not in the least surprising. EVs are a disaster. Hybrids (so far anyway) are much better.
why only 1/3rd
I would say that a $245m (minimum) loss for Hertz is a bad day for them as well. Somebody made a big booboo. I’m guessing plenty of other businesses have made multi-$million mistakes with regard to being or attempting to appear “green”. Heads are gonna roll.
Time to stop the death of EVs BS headlines
US EV sales in 2023 through third quarter were up 61% from 2022. 4Q 2023 is estimated up +40% from 4Q 2022. Full year 2023 will be up at least +50% (data for BEVs only)
That was booming EVs sales, not death of Evs that all you conservatives lust for.
Back to the Hertz customer experience with compact car rentals,
While EVs are expensive for Hertz to buy, customers see compact EVs as compact cas and expect compact car renta; fees.
The range is 272 miles for the base Tesla 3 to 341 miles for the Tesla 3 long range model
That is enough range for day trip rentals, full day rentals and weekend rentals. It may not be enough for a full week rental, but I never drove over 250 miles over a full week rental.
Rented EVs will be inconvenient for over 250 ir over 300 miles of driving.
How about less than 250 or 300 miles?
That’s where Hertz will screw you.
If you bring back an EV with less charge than when you got it. You pay a $35 recharging fee. That’s a lot more than the cost of the electricity
If you bring back an ICE rental Hertz charges $7 to refill the gas tank plus a fair market price for
the gasoline
How much gasoline will $35 buy?
If Hertz fills the tank for you, for a $7 fee, the remaining $28 would buy 8.75 gallons of gas at the current price of $3,20 a gallon. At 44mpg for a compact 2024 Toyota Corolla, 8.75 gallons of gas would take you 385 miles.
The Toyota Corolla would be a better deal for fuel charges, and you could save the $7 refueling charge by filling the tank yourself in 10 minutes.
High mileage renters will not often want EVs unless they are a real bargain versus ICEs
For short range EV rentals, the $35 Hertz recharge fee is an excessive high profit margin rip off.
The devil is in the details, as they say. The question you should seek to answer is who are buying those EVs. The biggest purchasers are governments who have mandated government fleets be electric. The next largest group are corporations, taking maximum advantage of tax breaks and credits for converting their fleets to EVs. The smallest group is individuals. I can no longer find the article stating this, but the report was sales to individuals were stagnating. If you find a definitive article saying otherwise I would appreciate seeing it.
In the U.S., EV sales made up 7.6% of total car sales in 2023, up from 5.9% in 2022, according to Kelly Blue Book estimates. The increase in EV sales have only reduced ICE sales by 1.7%. That’s progress but clearly an indicator that EVs are facing a struggle getting converts. It’s very easy to see that conversion of government and corporate fleets make up a significant fraction of that 1.7%.
Looks like the battery car market is already saturated.
I decided to check a few figures. I found a specific report for Ford, which reports a 43% increase in EV sales year over year for 2023, but the previous year over year was 90%. Make what you will of the numbers.
A battery car sitting in the rental lot charging makes the company exactly no income.