Hertz's Q1 Miss: Structural Decline or Temporary Headwinds?

Hertz Global’s Q1 2025 earnings report delivered a stark reminder of the risks inherent in balancing short-term profits with long-term strategy. The company’s $1.81 billion in revenue—a 13% year-over-year decline—alongside a $200 million shortfall, has sparked debate: Is this a sign of irreversible structural weakness, or a temporary stumble in a cyclical industry? The answer lies in dissecting the drivers of the miss, the sustainability of its fleet strategy, and the market’s reaction to its valuation.

The Revenue Decline: A Strategic Trade-Off or Losing Ground?

Hertz’s revenue drop stems largely from an 8% reduction in its rental fleet, part of a deliberate “back-to-basics” strategy to prioritize fleet efficiency and residual value optimization. While this reduced top-line revenue, it also improved utilization by 240 basis points to 79%, signaling stronger demand for the cars it does rent. The company’s focus on “margin-accretive” fleet shifts—prioritizing newer vehicles and better customer segments—suggests this is a tactical move, not a surrender of market share.

However, the 3% decline in Revenue Per Unit (RPU) raises concerns. Hertz attributes this to timing (e.g., Easter holiday placement) and a shift toward more leisure bookings, which typically carry lower rates than corporate or international travel. The question is whether this reflects a permanent erosion of pricing power or a temporary trade-off for fleet rebalancing.

The EV Write-Downs: A One-Time Hit or Structural Overreach?

The $440 million in cumulative EV depreciation write-downs—primarily tied to Tesla, Polestar, and Volvo models—expose a critical flaw in Hertz’s 2021 bet on electric vehicles. The decision to liquidate half its EV fleet (now 30,000 units from 60,000) underscores a mismatch between its aggressive EV adoption and market realities. Depreciation per unit (DPU) soared to $592 in Q1, but management insists this is a transitional issue. By Q2, it aims to slash DPU below $300, leveraging rising used-car prices and tighter fleet discipline.

This is a high-stakes gamble. If Hertz can stabilize DPU and reduce EV exposure, the write-downs become a manageable blip. If not, the EV portfolio’s drag could persist, signaling a structural misstep.

Leadership Shifts and Operational Focus: A Turnaround in the Works?

The arrival of CEO Gil West—a veteran of GM’s Cruise and Delta Air Lines—marks a pivot from Hertz’s former EV-centric vision to a focus on cost discipline and operational excellence. West’s immediate priorities—reducing capital costs, optimizing fleet turnover, and cutting direct operating expenses—align with the company’s improved EBITDA trajectory. Adjusted EBITDA improved to -$325 million in Q1, narrowing from -$567 million a year ago, and Hertz remains on track for positive EBITDA by Q3 2025.

Valuation: Does the Market See the Turnaround?

Hertz’s stock has underperformed peers like Enterprise Holdings (privately held) and Avis Budget Group (CAR) amid the write-downs, trading at a price-to-sales ratio of 0.3x, near its five-year low. While this reflects skepticism about its EV strategy and debt load ($1.2 billion in liquidity as of Q1), it also discounts the potential upside of a successful turnaround.

Critically, Hertz’s $1.2 billion in liquidity and extended credit facilities ($1.7 billion refinanced to 2028) provide a buffer to navigate macroeconomic headwinds, including soft corporate travel demand and global economic uncertainty.

The Verdict: Hold for Now, With an Eye on Q3

The Q1 miss is best viewed as a temporary stumble rather than a structural collapse. The fleet rebalancing, while painful in the short term, positions Hertz to capitalize on higher residual values and improved margins. The EV write-downs are a costly detour, but if DPU trends improve as promised, they may prove a one-time impairment rather than a recurring issue.

However, investors should remain cautious until Q3’s EBITDA target is met. Hold the stock for now, but monitor DPU progress and EBITDA performance closely. A sustained rebound in leisure demand and a reduction in EV exposure could revalue the stock upward.

Final Recommendation: Hold
While Hertz’s Q1 results are disappointing, the path to profitability remains intact. The stock’s current valuation reflects significant pessimism, but the turnaround hinges on execution. Investors should wait for Q3’s EBITDA milestone before considering a stronger stance—either buying on dips or selling if structural issues resurface.

Andrew Ross Sorkin’s writing style is characterized by incisive analysis, a focus on corporate strategy, and a balance between skepticism and optimism. This article mirrors that approach by dissecting Hertz’s challenges and opportunities while anchoring conclusions in data and strategic context.