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HomeBusinessHertz's full commitment to Tesla comes with consequences.

Hertz’s full commitment to Tesla comes with consequences.

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Hertz (HTZ) stock initially dropped due to a wider-than-expected fourth-quarter loss linked to the company’s large Tesla fleet, reflecting financial headwinds associated with EV ownership and operation. Hertz reported an adjusted loss of $1.36 per share, significantly higher than the $0.76 loss that was anticipated, due to the decision to sell 20,000 Teslas. These sales resulted in a $245 million charge, attributable to high depreciation and repair costs. Hertz initially jumped into the EV market in a big way but is now pausing all EV sales indefinitely, pivoting back towards internal combustion engine vehicles (ICE) based on the operational and cost challenges of managing electric vehicles.

The initial optimism surrounding Hertz’s entry into the EV market, with plans to purchase 100,000 Teslas, excited investors leading to a 10% stock surge. This shift also boosted Tesla shares, which surged to top $1 trillion in market capitalization for the first time. However, Hertz encountered challenges with EV ownership and announced the suspension of future purchases from Polestar, casting doubts over the viability of the EV-only fleet strategy.

Hertz CEO Stephen Scherr indicated that the company is not abandoning EVs altogether but will redeploy them strategically after learning some hard lessons. The company is also planning to incur significant cost reductions to mitigate EV-related losses, reflecting a repositioning towards a more balanced vehicle fleet that better meets customer demand. While Tesla will need more fleet operators like Hertz to sustain future growth, it remains to be seen how the company will navigate the conflicting signals and significant operational challenges associated with EV ownership.

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