Quiver Quantitative - Hertz (NASDAQ:HTZ) (HTZ), once a titan in the car rental industry, faced a significant downturn after an ambitious bet on electric vehicles (EVs) led by finance veterans Tom Wagner and Greg O’Hara. The duo, known for their extravagant Wall Street lifestyles, acquired the bankrupt company with a vision to revolutionize the rental car industry by transitioning to an all-electric fleet. Their strategy, which included a landmark order of 100,000 Teslas and an exclusive deal to supply EVs to Uber drivers, was celebrated in a high-profile launch event featuring Tom Brady. However, the optimism was short-lived as the venture into electrification began to unravel, with Hertz’s stock plummeting 74% since its IPO and the departure of Stephen Scherr, its chief executive officer tasked with leading the EV transformation.
The problems for Hertz began surfacing in earnest by early 2024. Tesla (NASDAQ:TSLA)'s (TSLA) unexpected price cuts, led by CEO Elon Musk, severely diminished the value of Hertz's fleet of EVs. Additionally, Wagner and O’Hara’s calculations failed to account for the operational realities of managing an EV fleet, including customer hesitance due to range anxiety and the logistical challenges of maintaining and repairing EVs. The once-heralded shift to electric vehicles resulted in a series of miscalculations, forcing Hertz to double down on traditional gas-powered vehicles and abandon its electrification ambitions.
Market Overview: -Hertz's stock has fallen 74% since its IPO in November 2021. -No immediate market reaction observed upon the publication of this Bloomberg story. -Investors will likely be looking for signs of Hertz's recovery plan under new leadership.
Key Points: -Hertz made a massive bet on Tesla EVs in 2021, aiming to become a leader in electric car rentals. -The gamble backfired due to several miscalculations: -Surging Tesla repair costs and accident rates. -Rapid price drops by Tesla, hurting Hertz's resale value. -Lower-than-expected demand for electric rentals. -Hertz has since reversed course, selling off its EVs and refocusing on gas-powered vehicles. -Stephen Scherr, the CEO appointed to lead the EV transformation, has resigned.
Looking Ahead: -Gil West, a seasoned operations executive, takes over as CEO. -The company faces challenges including: -Addressing persistent IT problems. -Recovering from Hertz's misguided electric vehicle strategy. -Competing in a saturated car rental market. -Whether Hertz can regain investor confidence and profitability remains to be seen.
The underlying issues at Hertz were more deep-seated than just the failed EV bet. The company had a history of executive turnover and chronic management problems, further exacerbated by the misjudged switch to EVs. These systemic issues were reflective of broader challenges within the rental car industry, and Hertz's attempt to address them through electrification only deepened the company’s troubles. The ambitious plan, while initially appearing to be a visionary move, turned out to be ill-timed and poorly executed, leaving the company struggling to find its footing.
Hertz’s journey from a celebrated IPO to a steep decline encapsulates the risks of overambitious business transformations, especially in industries undergoing rapid technological shifts. Wagner and O’Hara's story at Hertz is a cautionary tale of the perils of attempting to disrupt an established industry without fully grasping the operational complexities and market dynamics. As Hertz appoints its sixth CEO in a decade, Gil West, the focus shifts to stabilizing and finding a sustainable path forward for the century-old company, with lessons learned from the pitfalls of a high-stakes gamble on electrification.
This article was originally published on Quiver Quantitative