Shares of Avis Budget (CAR) more than doubled on Tuesday morning after the rental car company reported better-than-expected quarterly results as the return of leisure and business travel helped it rebound from a difficult 2020. During the company's earnings conference call, Avis Budget also said the it will be adding more electric cars to its fleet over time.
Also in the spotlight on Tuesday morning, shares of Hertz (HTZZ) fell into negative territory after Tesla's (TSLA) CEO Elon Musk said a deal had not been signed yet with Hertz for the previously announced 10,000 vehicle order. However, it didn't take long for the stock to bounce back and rally as much as 10% as the rental car company said deliveries of the Tesla vehicles had already started.
RESULTS: Avis Budget reported third quarter adjusted earnings per share of $10.74 and revenue of $3B, both better than the expected $6.52 and $2.71B, respectively. "Our third quarter results are a testament to our team's on-going focus around cost discipline and ability to execute operationally," said Joe Ferraro, Avis Budget CEO. "We are seeing the benefits of initiatives we began during the early days of the pandemic and look to build on this positive momentum as the travel environment continues to normalize."
Regarding electric vehicles, Briand Choi, Avis executive VP and CFO, said during the earnings call that "we at Avis realized that the electrification of vehicles is where not just our industry, but the entire mobility ecosystem is eventually headed." Choi added: "I think the bold move made by one of our competitors and that announcement is good for the overall rental car industry. It pushes pace and draws attention to what needs to be done to absorb electric vehicles at scale. I don't think it's fair to characterize that we haven't moved on this. Like we've spent a lot of time over the past 12 months with both our OEM partners to optimize a product line for electric vehicles and also our infrastructure partners to tackle logistical hurdles about, like I said, absorbing these vehicles at scale. So we are definitely moving forward on this front. But the reason you haven't heard from us publicly on this is like because of competitive reasons, we'd like to execute on our strategy before announcing it."
"We've had electric vehicles in our fleet in the past, and we will have more of them in our fleet going forward. We've been in conversations with all our OEM partners, and I would say that because one of the things that we would want to see with electric vehicles, especially early on in the build cycle is a vast diversity of fleet. [...] If you look now 2% or their balance of all cars manufacturer in the U.S. are electric, that number will go to about 10% in 2025 and maybe north of 30% in 2030," Ferraro added.
CYCLICAL PEAK: Morgan Stanley analyst Billy Kovanis raised the firm's price target on Avis Budget to $140 from $110 but kept an Underweight rating on the shares after the company hit a record high EBITDA margin in the third quarter, delivering against "very high expectations." The analyst told investors that he still believes that 2021/2022 will mark the cyclical peak and doesn't forecast Avis can maintain its current margin profile in the long-term.
TESLA; HERTZ CONTRACT: Tesla CEO Elon Musk said via Twitter on Monday that the company has not yet signed a contract with Hertz. "I'd like to emphasize that no contract has been signed yet. Tesla has far more demand than production, therefore we will only sell cars to Hertz for the same margin as to consumers. Hertz deal has zero effect on our economics," the tweet reads. On October 25, Hertz had announced an investment to offer "the largest electric vehicle rental fleet in North America," which includes an initial order of 100,000 Tesla vehicles by the end of 2022.
Meanwhile, in an emailed statement to media outlets following Elon Musk's tweet, Hertz said that, "As we announced last week, Hertz has made an initial order of 100,000 Tesla electric vehicles and is investing in new EV charging infrastructure across the company's global operations. Deliveries of the Teslas already have started. We are seeing very strong early demand for Teslas in our rental fleet, which reflects market demand for Tesla vehicles."
PRICE ACTION: In Tuesday morning trading, shares of Avis Budget jumped over 114% to $367, while Hertz's stock has gained about 9% to $37.20.