(Bloomberg) — Hertz Global Holdings Inc. earnings missed estimates amid headwinds from Tesla Inc. price cuts and the high price of repairs for electric vehicles.
Tesla has been rapidly dropping its prices to spur sales, which has lowered the resale value of the EVs in Hertz’s fleet by about one-third. Repair costs for EVs have also been higher than expected, about double what the company pays to fix damaged gasoline cars, Chief Executive Officer Stephen Scherr said in an interview Thursday.
The rental-car company reported third-quarter adjusted profit of 70 cents a share, below the 77-cent average estimate of analysts surveyed by Bloomberg. Excluding EV costs, Hertz probably would have met Wall Street expectations, Scherr said.
Shares of Hertz fell as much as 15% in New York. The stock was already trading at record lows after losing a third of its value since the beginning of the year.
Hertz will slow the pace of buying EVs while it learns how to manage costs, Scherr said. Hertz has 50,000 EVs currently, of which 35,000 are Tesla models. EVs account for about 11% of its total fleet.
Scherr said Hertz remains committed to buying 100,000 cars from Tesla and 175,000 EVs from General Motors Co., but the rental company won’t meet its goal to have EVs account for 25% of the fleet by the end of 2024, he said. The first order of business is to work with parts suppliers to lower repair costs. As EV prices settle, Hertz will buy more of them, he said.
“We have an opportunity to buy these cars now at roughly a third less than where we bought the initial component of our Teslas,” Scherr said. “We’re ultimately better buyers on a falling price where the margin composition on those cars will be better. They will be even better to the extent that we solve the issues around damage and cost.”
Hertz plans to buy 10,000 EVs from GM this year and has commitments to purchase another 165,000, he said.
Falling EV prices weren’t the only reason Hertz’s depreciation costs rose 52% in the quarter to $282 a car per month. A year ago, preowned cars were selling at record levels, which meant Hertz could sell its used vehicles at better prices. Hertz made $800 million more selling vehicles last year than it will this year, Scherr said.
“In 2022, residual prices of used cars were through the roof,” Scherr said. “The ability to sell cars and make a profit has come down.”
Travel demand is still growing after a robust 2022. Hertz’s utilization rate was 83% in the quarter, compared with 80% a year ago. But revenue per day fell 7% to $62.46.
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