April 3, 2024 • 19 mins
When Wall Street investors Tom Wagner and Greg O’Hara took over Hertz, they had ambitious plans. They aimed to revolutionize the car rental business by bringing a record number of electric vehicles into Hertz’s fleet, including 100,000 Teslas. And when Hertz’s IPO launched in 2021, it seemed Wagner and O’Hara had just made a visionary deal.
EVs were hot when Hertz started buying them. But as Bloomberg reporters Erik Schatzker and David Welch tell host Sarah Holder, the company would soon discover that making them work in the rental market was another challenge entirely.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. Last fall, my boyfriend
and I wanted to take a little trip from Brooklyn
to upstate New York. Amtrak couldn't take us all the
way to our campsite, so we did with so many
transit dependent New Yorkers have reluctantly done before us, we
rented a car. We booked one online through Hurts, the
(00:24):
rental car service, but when I got to the garage
to pick it up several hours late, that's on me.
The agents told me that all they had available was
an electric car, a Chevrolet Bolt to be exact. I'd
never driven one before, I didn't know much about charging them,
but we agreed it'd be a fun new adventure. So
off we drove. But around six hours later, we were
(00:49):
in a grocery store parking lot upstate, in the middle
of a rainstorm, trying and failing to fill the car
up with power. My umbrella was flapping in the wind,
the car was low on jew, and the charging station
was broken. It was the last one for miles. It
felt like we had made a huge mistake. What I
(01:09):
didn't know at that time is that by renting an
electric vehicle from Hertz I was part of a larger
bet the company had made years ago, one that led
it on a journey to electrify its fleet, embrace the
future of transportation, and hopefully reap real profits in the process.
But much like my upstate road trip, things for Hertz
(01:30):
didn't exactly turn out as expected. Eves were hot when
Hurts started ordering a bunch of them in twenty twenty one,
but the company would soon discover making them work in
the rental market was another challenge. Entirely today on the show,
how two Wall Street investors brought Herts out of bankruptcy
with an ambitious bet to revolutionize rentals, and how a
(01:53):
series of wrong turns left a big part of Hertz's
business stranded on the side of the road with no juice.
This is the big take from Bloomberg News. I'm Sarah Holder.
My colleagues Eric Shatsker and David Welch just published a
deep dive on Hertz's turbulent last few years.
Speaker 2 (02:16):
My name is Eric Shatsker. I am the editorial director
of Bloomberg New Economy, and I'm an editor at large
at Bloomberg BusinessWeek.
Speaker 3 (02:24):
David Welch, Detroit Bureau chief cover all things auto, regional politics,
whatever I get pulled into, and have been on the
Hurts story for a number of years now.
Speaker 1 (02:33):
Their story begins in the early days of the pandemic
when the company kreened into bankruptcy. By twenty twenty one,
Hertz went to auction and was acquired by investors who
had a plan to turn the business around. The two
men leading the takeover were Tom Wagner and Greg O'Hara.
Speaker 2 (02:49):
They are professional investors, they're not car rental experts. That's
the most important thing to remember as we talk about
what happened to her Hurts. The two people who led
the takeover of this company run investment firms. Tom Wagner
has a distressed debt hedge fund called Nighthead and Greg
(03:12):
O'Hara has a private equity firm specializing in travel and
tourism called Sartaris.
Speaker 3 (03:18):
And they're sort of their value investors. Basically, they look
for cheap assets that are out of favor and they
buy them. Then they figure they could whip them into.
Speaker 1 (03:25):
Shape, and at some point Hurts caught their eye. Why
were they interested in Hurts, this rental car company that
was being battered by the pandemic.
Speaker 2 (03:36):
Well, if you cast yourself back to those dark days
of the pandemic, the economy was shut down, but the
companies that were suffering the most were the companies that
depended on you and me and everybody else to travel.
There was no travel. We were all locked indoors. And
(03:57):
so they, like many people in the investment business, recognized
that the pandemic wasn't going to last forever, and that
would mean people getting on planes, that would mean people
taking cruises, that would be people renting cars. They were
interested in Hurts because it was the only car rental
(04:19):
company in North America to go bankrupt. There was no
opportunity with Avis, for example, like there was with Hurts
because Avis didn't go bankrupt, and the other giant in
the rental industry enterprise is privately owned.
Speaker 3 (04:34):
Right, And look, you use bankruptcy not only to get
protection from creditors and clear debt, which they did. They
reduced the company's dead burden, which was always a disadvantage,
but you use that period to cut out of other cost,
cut workers, get rid of unprofitable locations, and bring in
new management, and generally just give the business a whole
(04:55):
new fresh start.
Speaker 1 (04:56):
What was their vision for Hurts. What dream future were
they promising for this company.
Speaker 2 (05:02):
They had a very ambitious plan for Hertz, perhaps more
ambitious than almost anything else they had undertaken. They wanted
to take a rental car company that had exclusively gas
powered vehicles and on a very rapid schedule, turn them
all into evs.
Speaker 3 (05:20):
And at the time, EV growth generally was just rapid fire.
People were buying electric vehicles. Any company, any startup that
had an electrical vehicle story. They didn't even need an
electric vehicle that worked, they just needed a good story.
They were getting funded and getting funded with billions of dollars.
Speaker 1 (05:37):
But Wagner and O'Hara not only wanted to electrify Hertz
his fleet. They wanted to revamp and modernize all of
the company systems in an industry that has often seen
as slow and clunky. They wanted to transform renting a
car from a necessary chore to a seamless customer experience.
Speaker 3 (05:55):
There were some other things that were fundamentally smart that
they were trying to do, had lousy it lousy computer systems.
They wanted to modernize that. They wanted to get striped
to command so people could use Apple Play also very smart,
and they wanted to improve the Hurts apps so people
could do more from their phones and automate the business.
So it wasn't all just this electric vehicle pipe dream.
Speaker 2 (06:19):
They actually wanted to transform the way a rental car
company does business.
Speaker 1 (06:24):
And they were looking at partnering with Uber.
Speaker 3 (06:26):
Right, they did yes, and they partnered with Carvana as well.
Car companies have often looked at rental car companies as
a big buyer of a big amount of volume of
their production. And what that does is when you have
cycles of consumer demand being sometimes really hot and sometimes
really cold, if you've got this steady business of rental
car companies buying cars from you, that smooths out your
(06:49):
production schedules and makes the business less exposed to these
economic cycles. Hurts looked at Uber and Lift drivers the
same way. If they had a certain number of them
renting their cars, then they would be less exposed to
cycles and travel for both business and leisure.
Speaker 1 (07:08):
And part of their vision also included bringing in new leadership.
Right who did they hire to be the new CEO
of this reimagined Hurts?
Speaker 2 (07:17):
With this the same kind of creative inspiration that they
brought to electrification. They reached out to a very unconventional candidate,
Stephen Sure, who had recently retired as the chief financial
Officer at Goldman Sachs. He was a career banker who
had risen through the ranks at Goldman, become a strategist
and subsequently become the CFO, and after twenty eight years
(07:40):
of the firm, he decided he was going to retire
and do something else. And before long a call came
in from one of his former colleagues at Goldman, a
guy named Jeff Nettleman who is now working with Greg
O'Hara at Sertaris, and Jeff Nettelman wanted to know, Stephen,
You're interested in becoming CEO of HURTS.
Speaker 1 (07:58):
So this was the dream. They have their team set,
they have their vision, and in the beginning it seemed
like the plan might work. You open up your reporting
describing the celebratory night that Hurts executives were having in
November twenty twenty one. What had just happened? What were
they celebrating?
Speaker 2 (08:14):
Twenty twenty one was a gangbuster year for car rentals,
coming out of the pandemic. Everybody wanted a car, couldn't
buy a car, was renting a car, and so the
industry had phenomenal tailwinds at its back, huge demand, limited supply,
tons of pricing. Power cars again were hard to get,
and so there was selling for high prices. So Hurtz
(08:36):
was just crushing it on all fronts.
Speaker 1 (08:38):
So much so that executives had decided to go public
with an IPO and this party was the kickoff.
Speaker 2 (08:45):
And so the company that they bought out a bankruptcy
for five point nine billion dollars. At the time of
the IPO had a value of fifteen point three billion dollars.
They had more than doubled their money in the space
of only four months.
Speaker 3 (09:00):
They're having this big party. They've got, you know, some
great food there. They're blasting New Order, one of my
favorite bands music is playing and Tom Brady, the legendary quarterback,
he's on board as a pitch man. You know. Lots
of glitz, lots of glam, very very shiny ipo here.
Everything is looking hot and they are off to the.
Speaker 1 (09:20):
Races here and at the heart of the shiny IPO
was a multimillion dollar deal that Wagner and O'Hara were
placing their bets on in order of one hundred thousand teslas.
Speaker 2 (09:32):
You have to remember how hot everyone was for evs
at the time. There was this fascination with Elon. Musket
still exists, of course, but then Elon could do no wrong.
And when Hertz placed this order for one hundred thousand
teslas just days before it's IPO, Tesla shares rocketed up
(09:52):
thirteen percent and the value of that company shot above
one trillion dollars for the very first time. People looked
at that deal and thought, oh my god, the future
of evs is here, and so it's time to reprice
Tesla and it's time to think about this industry in
a totally different way. It really seemed like Wagner and
O'Hara had hit upon some kind of magic formula that
(10:15):
nobody else had ever dreamed of.
Speaker 3 (10:19):
That's betting that people are going to want to rent them,
and that it's going to be cheaper to maintain these vehicles,
and you'll get better pricing at the counter, and they'll
be rented out more often. They really bet that just
that renting evs would be a much better business than
they would grow it as they could get more of them,
because hey, Tesla's sales are hot, consumers love evs and
(10:40):
how could this possibly go round?
Speaker 1 (10:44):
But it did. Hurts would go from a fancy IPO
party and staggering growth projections to backtracking on its EV bet.
That's after the break, We're back. Hurts. Its executives and
investors placed a huge bet on electric vehicles as pandemic
(11:06):
restrictions lifted and people got back to renting cars, and
they ordered a fleet of one hundred thousand Teslas to
anticipate that demand. But in late twenty twenty two, about
a year after a big party Hurts through to celebrate
its IPO, it seemed like something wasn't clicking. People weren't
as interested in renting evs as they expected.
Speaker 2 (11:26):
That's the first warning light. If you think about all
these things going on, it hurts like warning lights on
a dashboard. That was the first one to go off.
People didn't want to rent Tesla's and at the time,
most of the EV fleet they had was Tesla's.
Speaker 3 (11:44):
Electric vehicle owners. Most of the time they have a
charger in their garage at home, so every morning they
wake up it's on full. They live with their car
the way you live with your cell phone, so they
don't really worry about charging unless they're on a road
trip someplace.
Speaker 2 (12:00):
People stepping off a plane who were about to take
a two hundred and fifty mile drive didn't want to
get behind the wheel of an EV or a Tesla
for the first time. They had range anxiety. They didn't
want to, you know, deal with this problem. They'd heard
of having to find a charger in the middle of
the night somewhere, or find themselves with an empty battery
on the side of the road right right.
Speaker 1 (12:20):
Tesla's are flashy and fun, but they they require some
getting used to.
Speaker 2 (12:24):
Absolutely they are not your you know, your grandfather's gas guzzler.
Speaker 1 (12:30):
On top of customers being wary of Tesla's hurtz, executives
started noticing another problem. Their repair costs were increasing significantly.
Speaker 2 (12:39):
Initially, it was a little bewildering, Why all of a sudden,
are are cars out of service? And why are repair
costs soaring? Turned out that many of the drivers who
stepped behind the wheel of the Tesla, often for the
first time, couldn't manage A lot.
Speaker 3 (12:56):
Of drivers aren't used to that rapid acceleration. They're not
used to the fact that when you take your foot
off the accelerator, but have not yet touched the brakes
that you will start to slow down. So people were
getting in small fender benders and accidents with these and
with Teslas. The repairs can be huge.
Speaker 1 (13:14):
But the challenges didn't end there. Their ev charging infrastructure
just wasn't as robust as they needed it to be.
Speaker 3 (13:21):
In order to keep all these cars charged, Hurtz needed
a lot of charging banks at their garage and in
some cities the grid wasn't really great for handling that
many chargers, and in other cases the grid was fine,
but the airport power source itself couldn't handle all of those,
so what they had to do often employees had to
(13:42):
drive the cars off airport and go and charge them
simplace else and drive them back. That's time consuming, that's
more labor. So they're being rented less often, they're getting
less at the counter than they thought in terms of
daily rental rates, and the repairs were much higher. And
that's when Stephen Scherr said, look, we have to start
winding this down.
Speaker 1 (14:02):
And then Tesla announces they are cutting prices on every
car in the lineup, and at first it seems like
this is great news for Hertz who buys a bunch
of their cars. But that's not exactly the way that
played out.
Speaker 2 (14:15):
What happened for sure at the beginning of twenty twenty three,
you may remember in January, in fact, Elon Musk decided,
as the EV market was getting more competitive, that he
wanted to compete for share over margin, which means I'm
willing to cut prices of my vehicles to make sure
that we're selling as many Tesla's or people are buying
(14:37):
Tesla's over the emerging number of options they had in
the electric vehicle industry. So he slashed prices on Tesla's
and he did that, you know, several times over the
course of twenty twenty three, so that by the end
of the year, many models were selling for thirty percent
less than they were only months earlier, and that was
(15:00):
a total nightmare. Initially, it seemed like good news because
Hertz was going to be buying more Tesla's and more
other evs like Pollstars and Chevy Bolts. But what quickly
became apparent to them is that as soon as these
cars start trading for lower prices, they have to revalue
their own fleet. That's a process called depreciation and depreciation
(15:24):
occurs on the balance sheet, but the change has to
be run through the income statement, and so all of
a sudden they had these massive costs for depreciation that
they hadn't anticipated.
Speaker 1 (15:35):
Some Hertz managers had warned Wagner, O'Hara and sure of
making such a large deal with Tesla because betting wrong
on models is a profit killer for car rental companies.
Now their concerns seemed validated, and Hertz was gradually scaling
down its fleet of evs. Eric, what has Hurtz's response
been to all of this.
Speaker 2 (15:55):
Tom Wagner was willing to speak to me on the
record up to a point. What he did say on
the record, and this you'll find in the story, is
that he is still an optimist and believes very strongly
that it won't be too long, as he put it,
and you know, before we figure all this stuff out.
Speaker 1 (16:17):
Hertz also said that it's focused on better aligning the
size of its EV fleet with customer demand.
Speaker 2 (16:22):
You know, Hurts at the moment is kind of backtracking
more than kind of it's reversing course on the EV strategy.
It's really unclear whether this company is going to be
anything other than the rental car business it used to
be coming out of this experiment. And the stock price
that was twenty nine dollars in the IPO is now
(16:44):
trading for less than eight.
Speaker 1 (16:46):
So how much did they lose on this bet?
Speaker 2 (16:48):
Well, people might think that it's a gargantuan amount of
money because we had that five point nine billion dollar
price tag when they bought it out of bankruptcy. Let's
not forget these guys are pretty clever investors. They put
two billion dollars of equity to back that five point
nine billion dollar enterprise value, and then in the IPO
(17:09):
they sold four hundred and twenty million dollars of stock.
Remember a twenty nine dollars IPO, So they recovered or
recouped almost a quarter of their investment in the IPO.
The people who have really suffered are the public shareholders
of Hurts who have ridden that stock down from twenty
nine bucks to under eight.
Speaker 1 (17:27):
Yeah, that can't feel good. And I mean, did everything
that Wagner and O'Hara had set out to do with
Hurtz fail? Did any of their strategy actually work?
Speaker 2 (17:37):
It's really important to talk about some of this because
it's easy to look at Hurts and say what a debacle.
Stories are rarely that black and white. In this case,
at least two of the ideas that they had have
worked out well for Hurtz. This ride hailing business that
they developed, renting cars on a weekly basis to Uber
(17:57):
drivers is in fact going exceedingly well. And the Carvana deal,
that one that was supposed to recover more money when
the Hurtz cars get sold used is in fact working too.
Speaker 1 (18:10):
But so interesting. There seems to be a couple of
ways to read the story. Either it's evs as a
business model don't work, or Hurtz failed to make EV's
work for their business model. It seems like maybe it's
a little bit of both.
Speaker 2 (18:24):
I think it's a combination of the two. There's no
question that the world is electrifying. It's now electrifying more
slowly than it was in twenty twenty one. It seemed
like electrification was around the corner. But all the early
adopters have bought their Teslas and bought their evs from
other manufacturers, and so demand for new evs is slowing.
(18:50):
Evs haven't worked out, and we'll see if they do.
It might be that they never work out. It might
also be that these guys were just way too early.
Speaker 1 (19:01):
In case you're wondering, my trip upstate ended up okay.
We made it to our campsite, charged the car in
the morning, and spent the rest of the trip finding
other places to charge. This is the Big Take from
Bloomberg News. I'm Sarah Holder. This episode was produced by
Adrianna Tapia. It was edited by Aaron Edwards and Danielle Sachs.
It was mixed by Ben O'Brien. It was factchecked by
(19:22):
Alex Sugiura. Our senior producer is Naomi Shaven. Elizabeth Ponso
is our senior editor. The Cold Beamster Borr is our
executive producer. Sage Bauman is our head of podcasts. Thanks
for listening. Please follow and review The Big Take wherever
you listen to podcasts. It helps new listeners find the show.
We'll be back tomorrow
Bloomberg Audio Studios, podcasts, radio news. Last fall, my boyfriend
and I wanted to take a little trip from Brooklyn
to upstate New York. Amtrak couldn't take us all the
way to our campsite, so we did with so many
transit dependent New Yorkers have reluctantly done before us, we
rented a car. We booked one online through Hurts, the
(00:24):
rental car service, but when I got to the garage
to pick it up several hours late, that's on me.
The agents told me that all they had available was
an electric car, a Chevrolet Bolt to be exact. I'd
never driven one before, I didn't know much about charging them,
but we agreed it'd be a fun new adventure. So
off we drove. But around six hours later, we were
(00:49):
in a grocery store parking lot upstate, in the middle
of a rainstorm, trying and failing to fill the car
up with power. My umbrella was flapping in the wind,
the car was low on jew, and the charging station
was broken. It was the last one for miles. It
felt like we had made a huge mistake. What I
(01:09):
didn't know at that time is that by renting an
electric vehicle from Hertz I was part of a larger
bet the company had made years ago, one that led
it on a journey to electrify its fleet, embrace the
future of transportation, and hopefully reap real profits in the process.
But much like my upstate road trip, things for Hertz
(01:30):
didn't exactly turn out as expected. Eves were hot when
Hurts started ordering a bunch of them in twenty twenty one,
but the company would soon discover making them work in
the rental market was another challenge. Entirely today on the show,
how two Wall Street investors brought Herts out of bankruptcy
with an ambitious bet to revolutionize rentals, and how a
(01:53):
series of wrong turns left a big part of Hertz's
business stranded on the side of the road with no juice.
This is the big take from Bloomberg News. I'm Sarah Holder.
My colleagues Eric Shatsker and David Welch just published a
deep dive on Hertz's turbulent last few years.
Speaker 2 (02:16):
My name is Eric Shatsker. I am the editorial director
of Bloomberg New Economy, and I'm an editor at large
at Bloomberg BusinessWeek.
Speaker 3 (02:24):
David Welch, Detroit Bureau chief cover all things auto, regional politics,
whatever I get pulled into, and have been on the
Hurts story for a number of years now.
Speaker 1 (02:33):
Their story begins in the early days of the pandemic
when the company kreened into bankruptcy. By twenty twenty one,
Hertz went to auction and was acquired by investors who
had a plan to turn the business around. The two
men leading the takeover were Tom Wagner and Greg O'Hara.
Speaker 2 (02:49):
They are professional investors, they're not car rental experts. That's
the most important thing to remember as we talk about
what happened to her Hurts. The two people who led
the takeover of this company run investment firms. Tom Wagner
has a distressed debt hedge fund called Nighthead and Greg
(03:12):
O'Hara has a private equity firm specializing in travel and
tourism called Sartaris.
Speaker 3 (03:18):
And they're sort of their value investors. Basically, they look
for cheap assets that are out of favor and they
buy them. Then they figure they could whip them into.
Speaker 1 (03:25):
Shape, and at some point Hurts caught their eye. Why
were they interested in Hurts, this rental car company that
was being battered by the pandemic.
Speaker 2 (03:36):
Well, if you cast yourself back to those dark days
of the pandemic, the economy was shut down, but the
companies that were suffering the most were the companies that
depended on you and me and everybody else to travel.
There was no travel. We were all locked indoors. And
(03:57):
so they, like many people in the investment business, recognized
that the pandemic wasn't going to last forever, and that
would mean people getting on planes, that would mean people
taking cruises, that would be people renting cars. They were
interested in Hurts because it was the only car rental
(04:19):
company in North America to go bankrupt. There was no
opportunity with Avis, for example, like there was with Hurts
because Avis didn't go bankrupt, and the other giant in
the rental industry enterprise is privately owned.
Speaker 3 (04:34):
Right, And look, you use bankruptcy not only to get
protection from creditors and clear debt, which they did. They
reduced the company's dead burden, which was always a disadvantage,
but you use that period to cut out of other cost,
cut workers, get rid of unprofitable locations, and bring in
new management, and generally just give the business a whole
(04:55):
new fresh start.
Speaker 1 (04:56):
What was their vision for Hurts. What dream future were
they promising for this company.
Speaker 2 (05:02):
They had a very ambitious plan for Hertz, perhaps more
ambitious than almost anything else they had undertaken. They wanted
to take a rental car company that had exclusively gas
powered vehicles and on a very rapid schedule, turn them
all into evs.
Speaker 3 (05:20):
And at the time, EV growth generally was just rapid fire.
People were buying electric vehicles. Any company, any startup that
had an electrical vehicle story. They didn't even need an
electric vehicle that worked, they just needed a good story.
They were getting funded and getting funded with billions of dollars.
Speaker 1 (05:37):
But Wagner and O'Hara not only wanted to electrify Hertz
his fleet. They wanted to revamp and modernize all of
the company systems in an industry that has often seen
as slow and clunky. They wanted to transform renting a
car from a necessary chore to a seamless customer experience.
Speaker 3 (05:55):
There were some other things that were fundamentally smart that
they were trying to do, had lousy it lousy computer systems.
They wanted to modernize that. They wanted to get striped
to command so people could use Apple Play also very smart,
and they wanted to improve the Hurts apps so people
could do more from their phones and automate the business.
So it wasn't all just this electric vehicle pipe dream.
Speaker 2 (06:19):
They actually wanted to transform the way a rental car
company does business.
Speaker 1 (06:24):
And they were looking at partnering with Uber.
Speaker 3 (06:26):
Right, they did yes, and they partnered with Carvana as well.
Car companies have often looked at rental car companies as
a big buyer of a big amount of volume of
their production. And what that does is when you have
cycles of consumer demand being sometimes really hot and sometimes
really cold, if you've got this steady business of rental
car companies buying cars from you, that smooths out your
(06:49):
production schedules and makes the business less exposed to these
economic cycles. Hurts looked at Uber and Lift drivers the
same way. If they had a certain number of them
renting their cars, then they would be less exposed to
cycles and travel for both business and leisure.
Speaker 1 (07:08):
And part of their vision also included bringing in new leadership.
Right who did they hire to be the new CEO
of this reimagined Hurts?
Speaker 2 (07:17):
With this the same kind of creative inspiration that they
brought to electrification. They reached out to a very unconventional candidate,
Stephen Sure, who had recently retired as the chief financial
Officer at Goldman Sachs. He was a career banker who
had risen through the ranks at Goldman, become a strategist
and subsequently become the CFO, and after twenty eight years
(07:40):
of the firm, he decided he was going to retire
and do something else. And before long a call came
in from one of his former colleagues at Goldman, a
guy named Jeff Nettleman who is now working with Greg
O'Hara at Sertaris, and Jeff Nettelman wanted to know, Stephen,
You're interested in becoming CEO of HURTS.
Speaker 1 (07:58):
So this was the dream. They have their team set,
they have their vision, and in the beginning it seemed
like the plan might work. You open up your reporting
describing the celebratory night that Hurts executives were having in
November twenty twenty one. What had just happened? What were
they celebrating?
Speaker 2 (08:14):
Twenty twenty one was a gangbuster year for car rentals,
coming out of the pandemic. Everybody wanted a car, couldn't
buy a car, was renting a car, and so the
industry had phenomenal tailwinds at its back, huge demand, limited supply,
tons of pricing. Power cars again were hard to get,
and so there was selling for high prices. So Hurtz
(08:36):
was just crushing it on all fronts.
Speaker 1 (08:38):
So much so that executives had decided to go public
with an IPO and this party was the kickoff.
Speaker 2 (08:45):
And so the company that they bought out a bankruptcy
for five point nine billion dollars. At the time of
the IPO had a value of fifteen point three billion dollars.
They had more than doubled their money in the space
of only four months.
Speaker 3 (09:00):
They're having this big party. They've got, you know, some
great food there. They're blasting New Order, one of my
favorite bands music is playing and Tom Brady, the legendary quarterback,
he's on board as a pitch man. You know. Lots
of glitz, lots of glam, very very shiny ipo here.
Everything is looking hot and they are off to the.
Speaker 1 (09:20):
Races here and at the heart of the shiny IPO
was a multimillion dollar deal that Wagner and O'Hara were
placing their bets on in order of one hundred thousand teslas.
Speaker 2 (09:32):
You have to remember how hot everyone was for evs
at the time. There was this fascination with Elon. Musket
still exists, of course, but then Elon could do no wrong.
And when Hertz placed this order for one hundred thousand
teslas just days before it's IPO, Tesla shares rocketed up
(09:52):
thirteen percent and the value of that company shot above
one trillion dollars for the very first time. People looked
at that deal and thought, oh my god, the future
of evs is here, and so it's time to reprice
Tesla and it's time to think about this industry in
a totally different way. It really seemed like Wagner and
O'Hara had hit upon some kind of magic formula that
(10:15):
nobody else had ever dreamed of.
Speaker 3 (10:19):
That's betting that people are going to want to rent them,
and that it's going to be cheaper to maintain these vehicles,
and you'll get better pricing at the counter, and they'll
be rented out more often. They really bet that just
that renting evs would be a much better business than
they would grow it as they could get more of them,
because hey, Tesla's sales are hot, consumers love evs and
(10:40):
how could this possibly go round?
Speaker 1 (10:44):
But it did. Hurts would go from a fancy IPO
party and staggering growth projections to backtracking on its EV bet.
That's after the break, We're back. Hurts. Its executives and
investors placed a huge bet on electric vehicles as pandemic
(11:06):
restrictions lifted and people got back to renting cars, and
they ordered a fleet of one hundred thousand Teslas to
anticipate that demand. But in late twenty twenty two, about
a year after a big party Hurts through to celebrate
its IPO, it seemed like something wasn't clicking. People weren't
as interested in renting evs as they expected.
Speaker 2 (11:26):
That's the first warning light. If you think about all
these things going on, it hurts like warning lights on
a dashboard. That was the first one to go off.
People didn't want to rent Tesla's and at the time,
most of the EV fleet they had was Tesla's.
Speaker 3 (11:44):
Electric vehicle owners. Most of the time they have a
charger in their garage at home, so every morning they
wake up it's on full. They live with their car
the way you live with your cell phone, so they
don't really worry about charging unless they're on a road
trip someplace.
Speaker 2 (12:00):
People stepping off a plane who were about to take
a two hundred and fifty mile drive didn't want to
get behind the wheel of an EV or a Tesla
for the first time. They had range anxiety. They didn't
want to, you know, deal with this problem. They'd heard
of having to find a charger in the middle of
the night somewhere, or find themselves with an empty battery
on the side of the road right right.
Speaker 1 (12:20):
Tesla's are flashy and fun, but they they require some
getting used to.
Speaker 2 (12:24):
Absolutely they are not your you know, your grandfather's gas guzzler.
Speaker 1 (12:30):
On top of customers being wary of Tesla's hurtz, executives
started noticing another problem. Their repair costs were increasing significantly.
Speaker 2 (12:39):
Initially, it was a little bewildering, Why all of a sudden,
are are cars out of service? And why are repair
costs soaring? Turned out that many of the drivers who
stepped behind the wheel of the Tesla, often for the
first time, couldn't manage A lot.
Speaker 3 (12:56):
Of drivers aren't used to that rapid acceleration. They're not
used to the fact that when you take your foot
off the accelerator, but have not yet touched the brakes
that you will start to slow down. So people were
getting in small fender benders and accidents with these and
with Teslas. The repairs can be huge.
Speaker 1 (13:14):
But the challenges didn't end there. Their ev charging infrastructure
just wasn't as robust as they needed it to be.
Speaker 3 (13:21):
In order to keep all these cars charged, Hurtz needed
a lot of charging banks at their garage and in
some cities the grid wasn't really great for handling that
many chargers, and in other cases the grid was fine,
but the airport power source itself couldn't handle all of those,
so what they had to do often employees had to
(13:42):
drive the cars off airport and go and charge them
simplace else and drive them back. That's time consuming, that's
more labor. So they're being rented less often, they're getting
less at the counter than they thought in terms of
daily rental rates, and the repairs were much higher. And
that's when Stephen Scherr said, look, we have to start
winding this down.
Speaker 1 (14:02):
And then Tesla announces they are cutting prices on every
car in the lineup, and at first it seems like
this is great news for Hertz who buys a bunch
of their cars. But that's not exactly the way that
played out.
Speaker 2 (14:15):
What happened for sure at the beginning of twenty twenty three,
you may remember in January, in fact, Elon Musk decided,
as the EV market was getting more competitive, that he
wanted to compete for share over margin, which means I'm
willing to cut prices of my vehicles to make sure
that we're selling as many Tesla's or people are buying
(14:37):
Tesla's over the emerging number of options they had in
the electric vehicle industry. So he slashed prices on Tesla's
and he did that, you know, several times over the
course of twenty twenty three, so that by the end
of the year, many models were selling for thirty percent
less than they were only months earlier, and that was
(15:00):
a total nightmare. Initially, it seemed like good news because
Hertz was going to be buying more Tesla's and more
other evs like Pollstars and Chevy Bolts. But what quickly
became apparent to them is that as soon as these
cars start trading for lower prices, they have to revalue
their own fleet. That's a process called depreciation and depreciation
(15:24):
occurs on the balance sheet, but the change has to
be run through the income statement, and so all of
a sudden they had these massive costs for depreciation that
they hadn't anticipated.
Speaker 1 (15:35):
Some Hertz managers had warned Wagner, O'Hara and sure of
making such a large deal with Tesla because betting wrong
on models is a profit killer for car rental companies.
Now their concerns seemed validated, and Hertz was gradually scaling
down its fleet of evs. Eric, what has Hurtz's response
been to all of this.
Speaker 2 (15:55):
Tom Wagner was willing to speak to me on the
record up to a point. What he did say on
the record, and this you'll find in the story, is
that he is still an optimist and believes very strongly
that it won't be too long, as he put it,
and you know, before we figure all this stuff out.
Speaker 1 (16:17):
Hertz also said that it's focused on better aligning the
size of its EV fleet with customer demand.
Speaker 2 (16:22):
You know, Hurts at the moment is kind of backtracking
more than kind of it's reversing course on the EV strategy.
It's really unclear whether this company is going to be
anything other than the rental car business it used to
be coming out of this experiment. And the stock price
that was twenty nine dollars in the IPO is now
(16:44):
trading for less than eight.
Speaker 1 (16:46):
So how much did they lose on this bet?
Speaker 2 (16:48):
Well, people might think that it's a gargantuan amount of
money because we had that five point nine billion dollar
price tag when they bought it out of bankruptcy. Let's
not forget these guys are pretty clever investors. They put
two billion dollars of equity to back that five point
nine billion dollar enterprise value, and then in the IPO
(17:09):
they sold four hundred and twenty million dollars of stock.
Remember a twenty nine dollars IPO, So they recovered or
recouped almost a quarter of their investment in the IPO.
The people who have really suffered are the public shareholders
of Hurts who have ridden that stock down from twenty
nine bucks to under eight.
Speaker 1 (17:27):
Yeah, that can't feel good. And I mean, did everything
that Wagner and O'Hara had set out to do with
Hurtz fail? Did any of their strategy actually work?
Speaker 2 (17:37):
It's really important to talk about some of this because
it's easy to look at Hurts and say what a debacle.
Stories are rarely that black and white. In this case,
at least two of the ideas that they had have
worked out well for Hurtz. This ride hailing business that
they developed, renting cars on a weekly basis to Uber
(17:57):
drivers is in fact going exceedingly well. And the Carvana deal,
that one that was supposed to recover more money when
the Hurtz cars get sold used is in fact working too.
Speaker 1 (18:10):
But so interesting. There seems to be a couple of
ways to read the story. Either it's evs as a
business model don't work, or Hurtz failed to make EV's
work for their business model. It seems like maybe it's
a little bit of both.
Speaker 2 (18:24):
I think it's a combination of the two. There's no
question that the world is electrifying. It's now electrifying more
slowly than it was in twenty twenty one. It seemed
like electrification was around the corner. But all the early
adopters have bought their Teslas and bought their evs from
other manufacturers, and so demand for new evs is slowing.
(18:50):
Evs haven't worked out, and we'll see if they do.
It might be that they never work out. It might
also be that these guys were just way too early.
Speaker 1 (19:01):
In case you're wondering, my trip upstate ended up okay.
We made it to our campsite, charged the car in
the morning, and spent the rest of the trip finding
other places to charge. This is the Big Take from
Bloomberg News. I'm Sarah Holder. This episode was produced by
Adrianna Tapia. It was edited by Aaron Edwards and Danielle Sachs.
It was mixed by Ben O'Brien. It was factchecked by
(19:22):
Alex Sugiura. Our senior producer is Naomi Shaven. Elizabeth Ponso
is our senior editor. The Cold Beamster Borr is our
executive producer. Sage Bauman is our head of podcasts. Thanks
for listening. Please follow and review The Big Take wherever
you listen to podcasts. It helps new listeners find the show.
We'll be back tomorrow
Hosts And Creators
Sarah Holder
Saleha Mohsin
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