Hertz Faces $1 Billion EV Loss, Delayed Revival and Downgraded Outlook

Hertz Global Holdings' stock was downgraded to Underweight by J.P. Morgan as its ambitious shift to electric vehicles has resulted in a $1 billion loss. Used EV values have plummeted, repair costs have risen, and a lack of spare parts for damaged Teslas exacerbates the situation. Analyst Ryan Brinkman predicts normalized earnings won't materialize until 2026, with a dip in EBITDA and no positive free cash flow in 2024. Hertz faces challenges from its debt load, potential limitations in share buybacks, and adverse court rulings from its bankruptcy, complicating its already precarious financial situation.

The stock of Hertz Global Holdings, Inc. (HTZ) has faced a significant downgrade from J.P. Morgan, moving it to the "Underweight" category [1]. This shift comes amidst the car rental giant's ambitious attempt to pivot towards electric vehicles (EVs), which has resulted in substantial financial losses and uncertainties.

According to J.P. Morgan analysts, Hertz's earnings potential may have been overestimated due to the company's focus on company-specific opportunities for growth [1]. However, they now anticipate a decline in underlying EBITDA, and the company is unlikely to generate positive free cash flow in both 2024 and 2025 [1].

One of the primary factors contributing to Hertz's financial woes is the sinking value of used EVs and the pricier repair costs associated with them [1]. These issues have resulted in approximately $1 billion in losses for the company. Furthermore, Hertz's lack of spare parts for damaged Teslas has compounded the problem [1].

Beyond these challenges, Hertz faces additional obstacles in the form of its substantial debt load, potential limitations in share buybacks, and adverse court rulings from its bankruptcy [1]. These complications add another layer of precariousness to the company's already challenging financial situation.

J.P. Morgan's revised earnings forecast for Hertz now stands at $400 million in 2026, down from their previous estimate of $425 million in 2025 [1]. Given the uncertainty surrounding Hertz's financial outlook, investors are advised to brace for volatility, as the company is not expected to return to normalized earnings until after 2026.

References:
[1] Benzinga. (2022, October 4). Hertz Gets Downgraded: J.P. Morgan Warns Of Bumpy Road Ahead For Car Rental. Retrieved October 4, 2022, from https://www.benzinga.com/news/24/10/41439069/hertz-gets-downgraded-jpmorgan-warns-of-bumpy-road-ahead-for-car-renter