In further evidence of the concerns people have over electric vehicles, Hertz is going to sell-off 20,000 of the electric vehicles purchased a year or so ago. The vehicles were mostly Teslas, but there were some Polestar electrics, too. With the proceeds from the sales of electrics, they will re-invest the money in internal combustion engine vehicles.
In a form 8-K filing to the U.S. Security and Exchange Commission, Hertz stated:
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.
Watch this video of the Hertz CEO as he explains the reasons for this action:
Hertz will announce it's 2023 Financial Results on February 6th.
