Hertz CEO Says Tesla EVs Cost The Company Heavily Owing To Price Cuts, Higher Costs Of Repair

Car Rental Service Hertz Global Holdings Inc HTZ reflected on Tesla’s impact on its business during the company’s third-quarter earnings call this week.

What Happened: Electric vehicles bear a higher cost of collision and damage repair as compared to combustion engine vehicles. This, the company said, weighed on its results in the last quarter and negatively impacted EBITDA. Further, when a car is salvaged, the company must crystallize the difference between its carrying value and the market value of the car.

“The MSRP declines in EVs over the course of 2023, driven primarily by Tesla, have driven the fair market value of our EVs lower as compared to last year, such that a salvage creates a larger loss and therefore greater burden,” company CEO Stephen Scherr said.

“…had our fleet in Q3 been similarly sized but comprised solely of ICE vehicles our EBITDA margin would have been several margin points higher,” he added.

Why It Matters: EVs account for 11% of Hertz’s total fleet. Within EVs, Tesla accounts for every four of five cars. However, the company, going forward, is looking to buy EVs from other manufacturers at a lower price point. With more established carmakers, there will be a better-established network of part supply unlike in the case of Tesla where it is “less mature,” Scherr said. This will help bring down costs of parts and labor, he added.

When asked if the company would consider buying Teslas at lower prices given that the company had warned of future price cuts during its third-quarter earnings, Scherr said, “Well, let me just say at the start, there’s no world in which we’re going to buy Teslas to achieve a zero EBITDA margin.” Unless the EBITDA margin generated on a car will be positive and attractive, Hertz will not be buying it, he said.

Though the company initially targeted making 25% of its fleet electric by the end of 2024, it is not a hard and fast timeline, he added.

For the last quarter, the car rental company reported an adjusted EPS of 70 cents, which missed the consensus of $0.76. Adjusted Corporate EBITDA margin contracted to 13% from 25% as the Adjusted Corporate EBITDA declined 42% Y/Y to $359 million.

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