Stephen Scherr: Well, look, I would say that there’s no departure from what we have said repeatedly in terms of priority, which is to invest in fleet and non-fleet in terms of building the business and then looking at buyback as an opportunity. It’s obviously an attractive opportunity given where the stock price has moved, but we take all three of those in tandem and make a decision on rational deployment of capital against both the near term and short term value of that investment.
Hans Hoffman: Got it. That’s helpful. Thanks.
Stephen Scherr: Sure.
Operator: One moment for our next question. Our next question comes from John Healy with Northcoast Research. Your line is open. John, please make sure your line is not muted. One moment for our next question. Our next question comes from Ryan Brinkman with JPMorgan. Your line is open.
Ryan Brinkman: Hi, thanks for taking my question. I thought to ask on EVs also. I appreciate the comments about EBITDA margin in the quarter pro forma for a purely ICE versus blended portfolio. Have you may be kept like a running tally of all of the tailwinds to EBITDA since the start of Hertz’s EV strategy in the fall of 2021? Such as higher revenue per day, which may be didn’t manifest itself as much this quarter, lower routine maintenance costs, and possibly even higher transaction days, although I’m not sure how you could measure that with certainty. But then also the tailwinds to EBITDA like the higher collision damage repair cost that you cited in 3Q, but then also of course the higher depreciation resulting from the Tesla and other EV automaker price cuts impacting residuals.
Do you have that net number? And then is there like a targeted date by which EV portfolio that transition might turn into a positive EBITDA contributor relative to the ICE portfolio when it would have similar or higher margins, et cetera?
Stephen Scherr: Well, look, let me start off by saying it is a positive contributor to EBITDA. It’s just proving to be not as positive given some of these near-term cost challenges that we both understand and are addressing straight up and so it’s important to sort of understand it that way. I think the way I would try to answer your question is that revenue production as a function of both price stability and demand for product, I think is clear, and that’s being driven across the whole of our fleet. And remember, we’re offering electric vehicles out to our customers because they want them, meaning we’re offering the widest mix of vehicles to meet the needs and desires of our customer set. I’d also say that the offering of EVs as a product is an entry point into a rideshare business that would exist purely with ICE.
So don’t misunderstand me, but I think is accelerated by virtue of the offer of electric vehicles and they are growing quite considerably inside the fleet by an order of about 50% in growth in EV utilization in rideshare. And I think in response to the last question, it’s clear that there are better economics that get even better just given where fuel costs and other costs sort of go for ultimate drivers. So part of what you see in the revenue is a tailwind, it is a benefit of the offering of the EV product. And so there is a contribution to EBITDA that’s being made. The reason to call out the several points of margin degradation occasioned by this is to really dimensionalize the effect of this. It is not a pervasive issue. Baseline costs in terms of DOE, as Alex noted, came down 10% year-over-year.
And so our ability to address and fix the cost equation, where I think the revenue equation is more in focus in terms of how to deploy the EVs, I think you’ll start to see this reflect better in ultimate EBITDA production around the EV but equally across the whole of the fleet. If that answers the question you were putting to us.
Ryan Brinkman: Yes, that is helpful. Thanks. And just maybe as a follow up to it, beyond addressing the repair cost issue, are there other changes you might be contemplating with regard to the EV strategy such as maybe pivoting away from earlier EV as a percent of fleet targets? Over the last week, GM, for example, has pulled away from some of its EV sales and capacity expansion targets in light of changing demand in order to shore up or be able to reiterate per unit EV profitability targets. I heard you say you’re now a buyer at lower prices of the Tesla vehicles, but how are you thinking about things are changing? Like Elon Musk comments on some of the recent Tesla earnings calls this year, where he’s spoken about being willing to potentially continue to lower prices on new vehicles.
All the way, he said, down to where they would make a zero percent margin at the time of new vehicle sale because he’s hoping to make it up on the back end by monetizing a larger installed base to sell aftermarket robotaxi software and other services into. So just curious how that might enter into your calculus if you’re still comfortable buying Teslas even at lower prices, given that automakers mindset with regard to new vehicle pricing strategy going forward.
Stephen Scherr: Well, let me just say at the start, there’s no world in which we’re going to buy Teslas to achieve a zero EBITDA margin. So that may be a strategy among a select number of OEMs, but it’s not ours. We’re going to hold every purchase to an ROA threshold where we’re quite confident that the EBITDA margin to be generated on that car will be positive and will be attractive. So let me just be very clear about that. The comment that I made about being a better buyer for those cars that meet that threshold, we are by definition a better buyer at lower prices than to be a better buyer at higher prices. So price decline will benefit us in the context of forward purchases. I think it’s also important to say that I’m not out to achieve a fixed percentage of our fleet being electric by date and time.
Meaning much as we had initially targeted to get to 25% of our fleet being electric by the end of 2024, I’ve said this before, and I’ll just repeat it here, that’s not hard in stone, meaning we’re going to continue to grow our fleet. We believe in the first mover advantage. We’re going to hold ourselves out to a very hard screen on EBITDA margin and return. And so we’re not a buyer for the sake of being a buyer, but we will continue to grow. As I said, the first mover edge here, I believe is real. And I think there’s no technology change that has happened in the world that operates on a straight line without some sort of challenges that are presented. But I think in the end, it’s our ticket to rideshare. It’s our access to partners. We’re feeding demand that’s growing among corporate and government.
We’re seeing rental increase commensurate with ownership, and importantly, we’re getting an early jump on a set of learned skills that I don’t think are easy to learn or gain overnight. And I would tell you that when you look at those rationale, when you look at that rationale as to why we want to be a first mover, I would say that your engagement with a customer who wants to rent an EV from you starts to get sticky because the rhythm is established. They understand how to do it, where to do it, how your apps work, where they’re charging, the engagement with corporates with whom we have contracts, and in conversations we’ve had with government would suggest that that too, poses a very sticky engagement around this model of car, and we’re going to pursue it.
