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Hertz's push towards electrification will benefit the brand in the long run

by Dissecting the Markets 3 months ago in investing
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Hertz had a low death before the pandemic as it struggled to appeal to consumers. Now, it has learned its lessons and is doubling down on electric vehicles.

Hertz's push towards electrification will benefit the brand in the long run
Photo by Jamie Street on Unsplash

Disclaimer: This article is not financial advice. All content should be considered opinionated. We are not responsible for any gains and losses. Please talk to a financial advisor before making any investment decisions.

While some will say that bad management is the reason for why Hertz filed for bankruptcy during the pandemic, those who study Hertz's history closely will find that there's a bigger reason. That reason is that it failed to appeal to consumers.

Hertz was big on renting out sedans. Meanwhile, consumers wanted SUVs. Failing to appeal to consumers was why it was losing business to competitors like Enterprise. After going through and avoiding bankruptcy, Hertz is now back in business.

Since being out of bankruptcy, Hertz ordered 100,000 Tesla vehicles and 65,000 Polestar vehicles. In the process, Hertz is letting Uber drivers rent electric vehicles. By making their fleet compose mostly of electric vehicles, Hertz is making its fleet appealing to consumers. Many that are going to be traveling (especially this summer) are eager to drive an electric vehicle and will enjoy the savings from being able to charge their vehicles rather than fill it up at a gas station.

Outside of buying thousands of electric vehicles, Hertz launched a subscription program that cost $1,000 per month. Many automakers like Porsche, Mercedes Benz, BMW, Audi, Jaguar, Volvo, and Cadillac all are looking to make a subscription program as well.

Looking at the "Press Release" section of Hertz's investor relations page, I found a couple interesting developments:

  1. Hertz will let customers rent a Mustang Shelby Gt500-H
  2. $2 billion share repurchase program
  3. Hertz selects AWS for cloud computing service provider

First, while Hertz is in the business of renting out electric vehicles, the company is also looking to let people rent out gas-powered vehicles that are perceived as "cool" to consumers. This will attract younger consumers who like to joyride with fast cars.

Second, Hertz has a market cap of $7.2 billion. By having a $2 billion share repurchase program, that would mean that Hertz is buying up nearly 28% of its shares. I think that investors should see this as a highly bullish opportunity.

And finally, Hertz chose AWS to provide them with cloud computing services. On the surface, it doesn't mean much. But, if you know how crazy cloud services billing is like (or if you've seen the HBO series Silicon Valley), then you'd understand the implications. In Silicon Valley, the startup that is central to the story receives a massive AWS bill as they experienced a successful launch. As their website continues growing, their AWS bills grow like crazy. Investors should pay attention to Hertz's cloud spending because they can get hectic.

Meanwhile, DigitalOcean is looking to help startups reduce their cloud computing spending.

The pandemic has made people less willing to share rides with strangers. Many are choosing to rent cars as a means of transportation. But with higher gas prices, those people are often choosing to go back to getting a taxi, rideshare, or even use electric scooters to get to places.

Outside of travel seasons, Hertz is dependent on the rebound in business travel to see more consistent business year-round. It is yet to be seen whether business travel spending rebounds, or not. Investors will have to be comfortable with the uncertainty that comes with Hertz's future.

Overall, Hertz is a business that emerged out of bankruptcy and that's headed in the right direction. The main bull thesis is that the company will be the most appealing place to rent a car. Other than that, it's yet to be seen whether their car subscription program can takeoff and become something meaningful for the business, or become a side project that gets scrapped later. At the end of the day, we're hoping for the best.

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About the author

Dissecting the Markets

My views on markets, investment strategies, perspectives on events, etc. usually differ from the mainstream consensus.

*All views expressed in my articles are my own and should be considered opinionated

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