Hertz's Turnaround Play: Can a Contrarian Bet Pay Off in 2025?

The automotive rental giant Hertz (HTZ) has been synonymous with financial turbulence over the past year, its stock price languishing near multi-year lows amid a storm of EV-related write-downs and fleet management challenges. Yet beneath the headline losses lies a meticulously plotted strategy to restructure its fleet, slash depreciation costs, and position itself for a comeback. For contrarian investors willing to bet on execution, the question is clear: Does Hertz’s 2025 turnaround plan justify buying the stock at its current depressed valuation? Let’s dig into the data.

The Pain Points: Why Hertz Lost $2.9B in 2024

Hertz’s struggles are well-documented. In 2024, the company reported a $2.9 billion net loss, driven by three interlinked issues:
1. EV Depreciation Catastrophe: A $195 million write-down on electric vehicles (EVs) and $119 million in related depreciation pressures, as EV residual values collapsed faster than anticipated.
2. Overexposure to Fleeting Trends: A surge in short-term EV purchases by rideshare companies (e.g., Uber, Lyft) left Hertz holding vehicles that couldn’t be sold profitably when demand waned.
3. Structural Cost Bloat: Vehicle depreciation per unit per month (DPU) soared to $592 in Q1 2024, nearly double the 2023 level, as fleet aging and misaligned inventory choices compounded losses.

The result? A $357 million adjusted EBITDA loss in Q4 2024 and a stock price that cratered to $12.50—a 65% decline from its 2021 peak.

The Turnaround Play: Gil West’s “Back-to-Basics” Gamble

CEO Gil West’s response has been aggressive. The strategy hinges on three pillars:

1. The EV Exorcism

By the end of 2024, Hertz completed its plan to shed 30,000 EVs, slashing exposure to volatile residual values. This move eliminated a $245 million drag on Q4 2023 results and set the stage for DPU normalization. The goal: Reduce DPU to below $300/month by late 2025, a 47% cut from Q4 2024 levels.

2. Fleet Freshness Over Flair

Hertz is overhauling its fleet composition to prioritize high-demand ICE vehicles and “program vehicles” (cars tailored to rideshare partners). This shift aims to boost utilization rates (already at 79% in Q4 2024) while avoiding the EV liquidity trap. A key metric to watch: fleet age, which should stabilize as older, depreciating units are replaced.

3. Cost-Cutting to the Core

SG&A expenses fell 14% in 2024, thanks to layoffs and ad spend cuts. Meanwhile, vehicle-related debt was reduced by $4.8 billion, easing liquidity pressures. With $1.8 billion in cash and a focus on operational discipline, Hertz is positioning itself to survive the “restructuring pain” without further dilution.

The Risks: Why 2025 Could Still Go South

The plan is ambitious, but risks abound:

• Breakeven or Bust: Hertz must hit its 2025 EBITDA breakeven target, which relies on DPU hitting $300 and RPU (revenue per unit) stabilizing at $1,376. A single misstep—say, a 5% drop in utilization—could derail this.
• EV Ghosts: While the 30,000 EVs are gone, $5.1 billion in non-vehicle debt and $11.23 billion in vehicle debt remain. If residual values for ICE vehicles also collapse (unlikely but possible), the company could face new write-downs.
• Competitive Pricing: Rival rental firms like Avis (CAR) and Enterprise are also slashing costs. If Hertz can’t maintain pricing power in a softening travel market, margins will stay under pressure.

The Contrarian Case: Why the Odds Favor a Turnaround

Despite these risks, the math suggests a compelling contrarian opportunity:

1. Valuation on the Floor: At current prices, HTZ trades at ~0.4x 2025E EV/EBITDA (assuming breakeven). Even a modest EBITDA recovery to $500 million in 2026 would imply a stock price north of $25.
2. Structural Fixes, Not Just Accounting Tricks: The fleet refresh isn’t a one-off charge—it’s a systematic shift to reduce DPU by cutting older vehicles and aligning with customer demand. Data shows DPU has already fallen 16% year-over-year in Q4 2024.
3. Liquidity Cushion: With $1.8 billion in cash and a $3.7 billion revolver, Hertz has the runway to survive near-term volatility.

Final Verdict: Buy the Dip, But Watch the Metrics

Hertz’s 2025 turnaround is far from guaranteed. Investors should monitor two key indicators:
- DPU Progress: Track whether DPU hits $350 by mid-2025 (a midpoint toward the $300 target).
- Debt Reduction: Watch for further deleveraging as cash flows improve.

For now, the stock’s valuation offers a margin of safety, and the restructuring plan—while risky—has the potential to unlock massive value. If you’re willing to bet on execution over the next 18 months, Hertz could be a rare $10 stock that doubles by 2026.

Actionable Takeaway: Accumulate HTZ at current levels, with a focus on dips below $12. Set a 12–18 month horizon, and keep an eye on DPU and utilization data. The pain of 2024–2025 may be inevitable, but the reward for surviving it could be extraordinary.