Hertz to raise USD 750 mn to address financial challenges post EV bet

Hertz Global Holdings announced plans to raise USD 750 million through a two-part secured notes offering, aiming to bolster its financial stability following setbacks from its electric vehicle (EV) investments. The car rental giant intends to use the proceeds to pay down part of its USD 2 billion revolving credit facility and improve its overall liquidity.

Leadership changes amid financial strain

In early June, Hertz appointed Scott Haralson, former CFO of Spirit Airlines, as its new finance chief. This move comes in response to declining demand for EVs, which has significantly impacted the company’s earnings. The weak demand has prompted Hertz to reassess its business strategy and streamline operations.

Reducing EV fleet

In a bid to mitigate losses, Hertz plans to sell an additional 10,000 EVs, increasing its total planned EV sales to 30,000 this year. Despite this effort, the company acknowledged potential difficulties in achieving the remaining 11,000 planned disposals as expected. Hertz also anticipates elevated vehicle depreciation costs to persist throughout 2024.

Impact of depreciation costs

During the first quarter ended March 31, Hertz incurred $588 million in vehicle depreciation costs, with USD 195 million attributed to EVs held for sale. To address these challenges, the company is accelerating the refresh of its vehicle fleet, which will result in some depreciation costs being recorded sooner than anticipated.

Financial projections and losses

Due to these ongoing expenses, Hertz expects an adjusted corporate loss before interest, taxes, depreciation, and amortization (EBITDA) of $435 million to $495 million in the second quarter. This contrasts sharply with the $347 million core profit reported in the same period last year. The company’s shares have also suffered, dropping 3% in morning trade and losing over 70% of their value so far this year.

Why Hertz is struggling?

Hertz's challenges can be attributed to several factors. The company's aggressive bet on EVs was driven by a global push towards greener transportation and anticipated consumer demand. However, the demand for EV rentals has not met expectations, leading to excess inventory and higher depreciation costs. This miscalculation has strained Hertz’s financial resources, necessitating the current fundraising effort.

The appointment of Scott Haralson as CFO indicates Hertz’s intention to strengthen its financial management and navigate through the current turbulence. His experience at Spirit Airlines, known for cost-efficiency, could prove valuable as Hertz seeks to streamline operations and reduce reliance on EVs.

Future outlook

Hertz’s decision to sell off a significant portion of its EV fleet and accelerate fleet refreshes highlights a strategic pivot towards stabilising its financial health. The company’s ability to adapt to changing market conditions and consumer preferences will be crucial in determining its long-term success.

The broader market context also plays a role in Hertz's struggles. The global shift towards EVs is still in its early stages, with infrastructure and consumer adoption varying significantly across regions. Hertz’s early bet on EVs, while forward-thinking, may have been premature given the current market dynamics.

Hertz Global Holdings is taking significant steps to address the financial impact of its EV investments through a substantial fundraising effort and strategic adjustments. The company’s ability to navigate these challenges and realign its business model will be key to its recovery and future growth. As the market for EVs continues to evolve, Hertz's experience offers valuable insights into the complexities and risks associated with large-scale transitions to new technologies in the automotive industry.

(Inputs from Reuters)