Hertz is in pain. The company expected a challenging first quarter, but got more than it bargained for, reporting an adjusted net loss of $392 million on Thursday. Despite the increase in demand for rental cars, Hertz says it has been hurt by its fleet of electric vehicles — made up mostly of Teslas — which are unreliable and more expensive than their gas-guzzling counterparts.
The car rental company plans to divest an additional 10,000 electric vehicles than initially planned, with the aim of selling a total of 30,000 by 2024. It was charged $195 million due to the depreciation of its electric vehicles, a blow made more acute by Tesla slashing its prices. Hertz said its vehicles had monthly depreciation costs of $592 per car, which is considered high in the industry. At $1.43 billion, Hertz has nearly halved its market capitalization from six months ago. The stock is down more than 40% this year and is currently trading at $4.68.
“Fleet and direct operating costs weighed on this quarter’s performance,” Hertz CEO Gil West said in his Thursday earnings statement. “We are addressing both issues: obtaining the right supply of vehicles at an acceptable capital cost while simultaneously increasing driving productivity and reducing operating costs.” West, who joined the rental company on April 1, was called in to right the sinking ship.
Hertz’s troubled time reflects the EV industry’s troubles and Tesla’s broader story of sales slowdowns amid increasing competition and safety concerns. Tesla announced Wednesday that it halved first-quarter profits due to weakening demand and shareholder skepticism about CEO Elon Musk’s fixation on fully autonomous cars, an ongoing project that has yet to come to fruition. Last week, Tesla recalled all its 2024 Cybertrucks over concerns about the defective accelerator pedal. It also announced it would cut prices on three of its models by $2,000.
A failed bet on Tesla
But before Tesla was a thorn in Hertz’s side, it was actually its saving grace. The pandemic devastated the tourism and travel industry in early 2020, pushing Hertz into bankruptcy. But the company was able to rise thanks to gaining meme stock status — and an infusion of $5.9 billion in new capital from private equity firms Knighthead Capital Management and Certares Management.
Within months of emerging from bankruptcy, Hertz ordered 100,000 Teslas added to its fleet and partnered with Uber to add 50,000 electric vehicles to its network within two years. Hertz had lofty goals of making 25% of its fleet electric by the end of 2024. This move was so big that it pushed Tesla over the line to become a $1 trillion company.
“Our approach is very strategic and very deliberate in terms of how we want to disrupt ourselves and hopefully disrupt the industry,” Mark Fields, then interim CEO of Hertz, told Bloomberg at the time. “Instead of asking why, we ask why not.”
But by the end of 2023, Hertz’s expectations for electric vehicles had turned: Tesla was already cutting prices to meet declining demand, and then CEO Stephen Scherr said the cost of repairing Teslas would be twice were as high as filling up cars with gasoline. Hertz announced in January that it would sell 20,000 cars in favor of gas-powered vehicles. The rental company seemed unable to avoid Tesla’s setbacks. By the end of that month, Tesla recalled nearly 200,000 cars, across three models with self-driving capabilities, due to issues with rear-view mirror displays that could increase the risk of accidents.
Hertz recently made management changes to stem the flow. In March, Scherr, who led Hertz’s push into making electric cars, stepped down from his role as CEO, paving the way for West, the former chief operating officer of General Motors’ robotaxi division, to take the helm to take over.
While Hertz is still feeling the heat from its electric cars, analysts say these issues have been years in the making.
“The execution and marketing of electric vehicles has been a horror show across the board,” Daniel Ives, an analyst at Wedbush Securities, told CNN in March. “It’s a black eye that they couldn’t recover from.”
This story originally appeared on Fortune.com
