Hertz’s business challenges in the last 10 years have been truly astounding. This week, though, the rental car giant witnessed one of the most stunning increases in stock value ever. On Wednesday, the company’s stock jumped by 56%. This spike followed in the heels of the announcement by Pershing Square Capital Management run by prominent investor Bill Ackman that it had taken a large position in Hertz. This announcement is an exciting and historic development for Hertz. The company has weathered an up and down course ever since its dramatic bankruptcy during the coronavirus pandemic in 2020.
Although Hertz had exited Chapter 11 bankruptcy in 2021, the journey moving forward would still be a challenge. The ambitious company took a self-disruptive leap into exclusively investing in an all-electric vehicle fleet, largely betting on Tesla models. This strategy ultimately proved counterproductive. As Teslas flooded the used car market, their residual values collapsed, leading Hertz to lose billions of dollars. The impact of the increase in vehicle values has been especially devastating. Incredibly, Hertz announced a $2.9 billion loss in its fourth-quarter earnings for 2024, highlighting the severity of the blow. Within that report, the company highlighted a $245 million loss on the sale of electric vehicles during the same period.
The announcement of Pershing Square’s stake has shifted that narrative entirely at least to start with a positive one for Hertz. The investment firm became Hertz’s second-largest shareholder after increasing its stake to 19.8% through a combination of shares and swaps. Until last month, Pershing Square had accrued a 4.1% stake in the company as of the end of Q4 2023. This bold, strategic investment by Hertz represents a vote of confidence in the company’s ability to recover and return to growth.
Even with the company’s recent rise on Wall Street, Hertz will still be judged harshly for its financial past and ongoing operational and logistical hurdles. While we commend the company’s ambitious transition to electric vehicles, we have deep concerns. This is particularly the case given the unpredictable nature of the EV market and its possible impacts on economic well-being. The large losses they’ve reported are an important caution about the high cost of such transitions.
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