Hertz Global Holdings Inc. (NASDAQ: HTZ) revealed on Thursday its decision to sell approximately 20,000 electric vehicles (EVs) from its U.S. fleet. This move accounts for about one-third of the global EV fleet owned by the company.
The planned vehicle dispositions, which commenced in December 2023, are expected to unfold in an orderly fashion throughout 2024, encompassing various makes and models. Importantly, the EVs designated for sale will remain available for rental within Hertz’s fleet during the sales process.
The proceeds generated from these sales will be reinvested, with a portion allocated to the purchase of internal combustion engine (ICE) vehicles, aligning with evolving customer demand trends.
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Hertz anticipates recognizing a non-cash charge of approximately $245 million in incremental net depreciation expense during the fourth quarter of 2023. This charge reflects the adjustment of the carrying values of the EVs as of December 31, 2023, to their fair values, considering associated expenses tied to the vehicle dispositions.
The company assures that this action is not expected to significantly impact its asset-backed securitization facilities, nor does it foresee the need for additional cash contributions resulting from this strategic decision.
The move to reduce the EV fleet aligns with Hertz’s strategy to balance supply and demand for EVs, enabling the elimination of a disproportionate number of lower-margin rentals and a reduction in damage expenses associated with EVs. The company, however, emphasizes its continued commitment to electric mobility, ensuring customers have a diverse selection of vehicles.
Hertz is implementing a series of initiatives to enhance the profitability of its remaining EV fleet. These include expanding EV charging infrastructure, fostering relationships with EV manufacturers for cost-effective access to parts and labor, and introducing policies and educational tools to enhance the overall EV experience for customers.
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Impact on earnings
The company expects the planned reduction in the EV fleet and the subsequent reinvestment in ICE vehicles to positively impact adjusted EBITDA throughout 2024 and 2025. By the end of 2025, the aggregate two-year benefit to adjusted EBITDA is projected to offset the incremental net depreciation expense recognized in the fourth quarter of 2023. The expected financial benefits stem from higher revenue per day and lower depreciation and operating expenses related to the remaining fleet.
Hertz estimates incremental free cash flow generation of approximately $250 million to $300 million over the combined years of 2024 and 2025 as a result of these actions.
The company is set to report its financial results for the fourth quarter ended December 31, 2023, on February 6, 2024. Preliminary estimates suggest revenue in the range of $2.1 billion to $2.2 billion, in line with historical seasonality.
Adjusted EBITDA for the fourth quarter is expected to be negatively impacted, primarily due to the incremental net depreciation expense associated with the EV sales plan.
In October 2023, the firm reported quarterly earnings that fell short of expectations, primarily due to several challenges it encountered, including price cuts by Tesla and the elevated repair costs associated with EVs.
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
