Before long, though, those fears abated. A Hertz spokesperson publicly confirmed the order and said Tesla deliveries had already begun. The real question, it seems, is whether all 100,000 vehicles will actually arrive in the next 14 months: The Wall Street Journal reported that the two sides are still “hammering out the details” of a specific delivery timeline.
In the end, then, it appears Hertz has indeed lined up a transformational deal. Regardless of any communications snafus, that deal is the latest step in a remarkable recovery for the company—an only-in-the-pandemic story of lockdowns, meme stocks, bankruptcy and car shortages. And now, you can add Musk to the mix.
Founded in 1918 in Chicago, Hertz was for many decades one of the leading players in the U.S. rental-car industry, churning out billions of dollars of revenue each year. Those billions, though, were dependent on the company’s customers traveling. When the pandemic arrived, that travel stopped, and trouble ensued.
By the end of April 2020, Hertz was missing lease payments on its fleet. On May 18, Kathryn Marinello stepped down as CEO. Four days later, on May 22, the company filed for Chapter 11 bankruptcy, listing $18 billion in debt. Shortly after that, famed activist investor Carl Icahn sold his entire 39% stake in Hertz for a mere 72 cents per share, taking a $2 billion loss.
Then, a funny thing happened. Retail investors started flocking to Hertz stock. Some were driven by a belief that the Hertz brand could eventually sell for enough to return some value to equity holders. Some were driven by pure speculation. Whatever the reason, the result was that Hertz shares soared 1,000% in the span of two weeks, climbing from as low as 59 cents per share up to $5.50.
Hertz tried to capitalize. In June, in a highly unusual move, the bankrupt company announced plans to sell as much as $1 billion worth of new shares, while cautioning investors that “the common stock could ultimately be worthless.” It managed to raise $29 million before the SEC intervened. The meme craze began to fade. In October, the NYSE formally delisted Hertz, relegating the company to the realm of penny stocks.
The smart money derided these retail investors who were pumping cash into a bankrupt business. But as it turned out, those retail investors were onto something. Global car shortages (caused in large part by global chip shortages) meant that prices for used cars surged during the second half of 2020; Hertz took advantage by selling off hundreds of thousands of vehicles, nearly a third of its overall fleet. When travel resumed quicker than many expected, those same car shortages meant Hertz and its rivals were able to rent for their remaining inventory for eye-watering rates—more than $300 per day in some cities.
When Hertz began the process of looking for new investment to help bring the company out of bankruptcy, it had no shortage of suitors. A host of private equity firms circled the business, including Warburg Pincus and Centerbridge Partners. A bidding war developed, and when the dust settled this May, the winners were Knighthead Capital Management and Certares Management, who agreed to furnish Hertz with some $5.9 billion in new capital while slashing $5 billion off its debt load. The deal also called for owners of Hertz equity to receive as much as $8 per share—a shocking win for those retail investors who had rushed to Hertz a year prior, and a demonstration of how the nature of the stock market has changed in the meme-stock era.
Hertz formally emerged from bankruptcy on July 1, and its stock began trading over-the-counter at $22 per share. Soon, it will return to a true stock market: Hertz filed last month for an IPO on the Nasdaq. And now, the company will roll into that public debut backed by a whole lot of buzz—and with a whole lot of new Teslas en route to its network of locations.
At Friday’s close, Hertz stock was trading for $34.39 per share, giving the company a market cap of more than $16 billion. It has been a spectacular rise from the brink of death. When you have that sort of comeback to celebrate, Elon Musk can quibble about delivery timelines all he wants.
And now, onto the rest of our recap of the week...
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