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Thanks Darren H. for sharing his research and VIC members burlap, Siren81, falcon44, etc.  for writing about car rental companies.

Sixt is a premium rental car company founded by Martin Sixt in 1912 in Germany. When Erich, Martin’s son, took over in 1969— Sixt still only had a fleet of 200 vehicles.

Today, with excellent relationships with OEMs (especially German OEMs, nearly half of Sixt’s fleet comprises of German brands such as Audi, BMW, or Mercedes Benz), Sixt has a fleet (excluding franchises) of 165,000 wholly owned vehicles spanning 13 countries with North America, Germany, and Europe as the 3 most important locations. Germany accounts for the largest share of Sixt’s rental fleet but may soon be passed by the U.S.

Inclusive of franchises, the average fleet size is about 270,000 vehicles covering over 100 countries. Operation via franchisees is used to mitigate risk in less profitable and more cutthroat markets. 

Erich Sixt eventually stepped down as CEO and became chairman of the supervisory board. He is succeeded by his sons Alexander and Konstantin as co-CEOs. The family still eats its own cooking— they own 58.3% of Sixt.

Sixt’s future upside depends on gaining market share in the U.S (currently 3-5% of market share) which is dominated by Enterprise (owns more than a third of the market), Avis, and Hertz. Avis Budget Group and Hertz collectively hold more than 55-60% of the US car rental market.

Despite Hertz (writeup done by VIC member burlap) still holding a big piece of the pie and doing buybacks, it is in a vulnerable position being highly levered with a changing, but somewhat improving c-suite. Enterprise has gone complacent, and their services have faltered. Avis as covered by VIC members Siren81 and falcon44 shows you the pre-unit fleet cost, unit economics, etc. in an article which they both shorted.

After the pandemic hit, the demand for car rentals plunged, but the global shortage in semiconductors meant car rental prices soared. In the U.S., vehicle rental prices rose 30% in May 2021 vs. May 2019 with growth as strong as 50% in Hawaii or Florida. This industry phenomenon only provides temporary pricing power.

Sixt has made in-roads in the U.S with 43 of the major 50 airports driving major traffic. They are willing to take short-term pains to aggressively gain market share. This could benefit them in the long run, but this may also be akin to winning a beauty pageant in a brothel.

Despite repurchase agreements and good financial management (manageable LT loans, good assessment of depreciation and fleet as current assets)— my concern is that brand loyalty does not exist in car rentals— even if Sixt claims oligopoly status with 4 players in the U.S, rental cars are not loyal to certain brands, it’s hard to make the brand “sticky”— whoever offers the lowest price tends to win.

Sixt is available in ordinary and preferred shares. While Sixt’s preferred shares are worth a look, I am hesitant to pull the trigger with conviction since the rental car industry has benefited from tight supplies during covid and thus gained temporary pricing power for a few years. Sixt has done many things to build a moat— with better service, polite reception at airports, efficient customer management in terms of creating a universal Sixt “One” app with ride share and offering luxury cars at a reasonable price.

The question is how durable is this moat? Should they achieve their goals and gain market share in the U.S, will the dominance last for a decade?

Total Addressable Market and the importance of capturing the U.S market with a Long Runway —

Can Sixt capture more than 3-5% market share?

The total addressable market of the car rental industry is approximately 90-100B and is predicted to reach 135-145B by 2027, corresponding to an annual growth of 5-9%.

North America dominates the car rental market, accounting for approximately 42 to 52% of overall market share with about 2 to 2.8 million rental vehicles in circulation which makes the addressable volume for the U.S market about USD43-50B in 2024.

 In terms of vehicle units, Enterprise covers a 33-50% of the N.A market with about 1 to 1.3 million vehicles, with Avis having 380,000 to 420,000 vehicles and Hertz at 260,000 to 360,000 vehicles. Sixt has locations at many important airport branches but is lacking in its fleet size in the U.S with about 70,000 to 120,000 vehicles.

Assume for easy calculations that total rental vehicles is at 2 million. 10% would be 200,000 vehicles, 3-5% (which is where Sixt is currently at) would be 70,000 to 90,000 vehicles, which only captures 3-4% of U.S market but is more dominant in Europe with 17-20% of the market, including franchisees. To capture 10% or more of the U.S market, Sixt would need to triple their fleet.

About 80% of the U.S. car rental market’s revenue comes from the airport segment and of all the airports, 50 airports in the U.S have the most traffic which brings in the most revenue. Sixt is in 43 of the 50 airports and had 12 branch openings in 2023.

25 to 30% of Sixt’s consolidated revenues comes from the U.S already, which is amazing progress considering that Sixt entered the U.S. market about a decade ago in Florida with a relatively small presence— Sixt is now the 4th largest vendor behind Enterprise, Avis, Hertz with presence with 103 rental stations.

However, 103 stations in the U.S is only a small portion of stations in wholly owned countries 893, and an even smaller portion if you include franchise countries— which was 2082 stations in September 2023.

Tom Kennedy as CFO and Expansion in USA with premium/luxury fleet

In 2020, Sixt hired Tom Kennedy as U.S president and CFO. Kennedy was a former executive for Hertz and Vanguard (the parent of National and Alamo before Enterprise bought those brands). Sixt then acquired concessions at 10 U.S. airports from the parent company of Advantage Rent a Car, putting Sixt in all three major New York-area airports as well as Houston, Orlando, and Las Vegas, among other markets. Sixt then bought a few more. Sixt opened airport locations in Charlotte and Baltimore including a presence in Canada through Vancouver and Toronto.

Kennedy said 40% of Sixt's vehicles are considered luxury, while the closest competitor only has 17%. "We're targeting a subsection of demand with a premium positioning," Kennedy said. Kennedy also said Sixt's cars have relatively few miles on them. "People care about mileage," he said, adding that “premium cars need to be younger when you remarket them."

There are several types of travellers for whom a premium rental might be appealing, such as the corporate travellers who wants to make an impression at the client meeting (Sixt can handle split billing, so business travellers can pay the difference on what their company will reimburse). There's also the leisure customer who wants a bigger, nicer car on the weekend. Or the driver who sees an opportunity to do an extended test drive of a model they're curious about.

Economy cars accounted for over 32-34% of global car rental market share, whereas luxury cars make up around 25-30%.

Premium cars at a reasonable price— more room to increase prices in the future

Excerpt by author Rebecca Tobin of Travel Weekly

https://www.travelweekly.com/Travel-News/Car-Rental-News/Sixt-accelerates-US-expansion

Customers who are not in market for a luxury rental can opt for a Nissan, Toyota or similar vehicle from Sixt. However, a recent check of prices at Houston's George Bush Intercontinental Airport on Sixt's website showed that a BMW 3 Series was only about $13 a day more expensive than a Toyota Camry. The price to rent a BMW X3 from Sixt hovered at around $88 a day this summer at Houston Bush.

Earlier this summer, I had family business that took me to Texas, and Sixt gave me an opportunity to drive one of its vehicles. After landing in Houston, I negotiated my way to the car rental building, and about 20 minutes later I was easing out into steamy, midmorning traffic behind the wheel of a BMW X3 with a little less than 40,000 miles on it. 

I've rented Minis and Mercedes in the past but did so from a boutique company that specializes in ultraluxe makes and models. 

The X3, by contrast, can be rented in multiple markets around the U.S. At Houston Bush, the price in mid-September hovered around $88 a day.

In Houston, the in-terminal experience with Sixt was fast and friendly. The physical plant has, as Kennedy described it, a "clean, modern look." And there was no mistaking its presence in the rental terminal: Each clerk's desk was lit from within by an orange glow. 

Sixt's orange branding isn't necessarily limited to the office. In a bid to grow its profile, Kennedy said Sixt would do more airport advertising. It also is shoring up travel partner relationships. A newly built-out sales team is courting corporate and leisure agencies.

"Germany is the largest market, with the U.S. being the second largest and growing," Kennedy said. "It will eclipse Germany at some point. That's my goal."

I suspect Sixt has even more room to increase their gross margins for premium cars, but they won’t until they gain more market share in the U.S. If you look at the chart below, Sixt boost a gross margin of 64%, while Avis is at 41% and Hertz is only at 25%.

Author’s Personal Experience— great reception and upgrades, terrible service during car returns

Let me share my personal experience. I first became aware of Sixt when I rented their cars in Europe and North America.

Of the two times I used Sixt, I rented a Japanese car (Toyota, Nissan). To my surprise, they either were out of Japanese cars, so Sixt offered to upgrade to a German car— in both cases, it was a luxury car— Audi and BMW. Both times, the short line and polite reception at the rental booth compared to Dollar, Thrifty, or Avis made Sixt stand out.

However, what really caught me off guard was when I returned my Audi to Sixt for inspection. A nail was lodged in tire. Without hesitation, the manager wanted to charge an exorbitant fee. I had to argue and send an email to make sure that I was not being unfairly charged. I was not charged in the end but was quite upset.

Sixt takes extra precautions to make sure there’s no scratches or any dents and they do a very good job of checking the moment you return their car. Having heavy penalties for damages deters careless customers and ensures cars are returned in pristine condition, which helps meets the standards for resale, but I feel that if Sixt does this too excessively, it prevents customers from returning.

Competitors— KPI and Unit Economics – Estimates due to Lack of Transparency from Sixt

Sixt management intentionally does not share some conventional KPIs—in the quest for improved fleet utilization (fleet efficiency) and Revenue Per Day (RPD)— rental companies try to maximize these two important figures.

We can only assume that Sixt falls into the range of 55-71USD for Revenue Per Day with a utilization rate which mimics the industry of 68-78% about the same ballpark as Hertz & Avis.

In general, the US market has higher average RPD than Europe (Sixt still has less US exposure at the moment) offset by its premium offering that commands higher RPD.

RPD continues to stay at an inflated level vs pre-Covid (60s vs 40s). All it takes is a player to go after market share at the expense of pricing to drive industry RPD down, which could happen anytime and likely initiated by Sixt in the US, as they are hungry for market share.

https://www.discovercars.com/blog/car-rental-company-statistics#!/tab/482788204-5

This site above provides some data for RPDs and utilization so you get a comparison.

Avis/Budget/ZipCar

Inclusive of international and domestic (U.S) figures, Avis has rental days of about 100-125M days with an average fleet of about 500,000 to 650,000 which brings their revenue per day to $50-75. Vehicle utilization is around 70-75%. Per unit fleet cost per month fluctuates from 150 to 250. 70% of Avis’s revenues are from airports.

Avis has completed more than 36-40 million vehicle rental transactions worldwide and generates total revenues of approximately 12-14 billion during with an extended global reach with nearly 10,250 rental locations throughout the world, including approximately 3,900 locations operated by licensees.

Hertz

Hertz has rental days of 80-155M days with an average fleet size of 300,000 to 400,000 with a revenue per day of $45-65. The depreciation per month is about 90-260M per month. Hertz plans to buy back 90% of float, which would be about 54% of total shares in a period of 2 to 3 years.

https://secondmeasure.com/datapoints/top-car-rental-companies-competitors-turo-getaround-hertz-avis-enterprise/

Repurchase agreements

Offered by auto manufacturers to car rental companies, repurchase agreements from the manufacturers guarantees a minimum level of production to buy back vehicles from the car rental company for a set monthly depreciated value — provided that the vehicle is returned in the specified period and in the contracted condition to be resold to dealers.

Repurchase programs lower risk for the rental company. By returning the car early, rental companies will only pay the minimum term depreciation. This is crucial since depreciation and amortization play a huge factor— the car rental company pays for the capitalized cost of the vehicle (usually fleet invoice) minus the depreciation. If rental companies decide to keep the car, rental companies will call their fleet suppliers and request a non-return allowance.

In 2022, the depreciation of rental vehicles for Sixt increased 68.6& to EUR 407M due to having a large fleet with some cars without buy-back agreements. Depreciation of PPE increased 14% in 2022 which amounted to EUR140M.

The average holding period of a passenger car was 9 months is 2023. About 70-75% of Sixt’s cost base is variable due to Sixt’s limited holding period of 6 to 8 months for their fleet of vehicles. Repurchase programs allow Sixt to de-fleet quickly at a much lower cost and not get stuck with cars that will need to be sold in a down market.

From what I’ve heard, but can’t confirm— Enterprise has such a large operation that they scoff at repurchase agreements since they own their own dealerships and have more bargaining power with auto-manufacturers. Whether this is true or not has yet to be confirmed.

Balance Sheet

Sixt has a very clean balance sheet with 2B in equity. 86% of assets are cash or liquid investments and working capital. With a total of 6.8B in in assets, 4.69B are in rental vehicles with working capital and liquid assets making up 1.2B. Rental assets increased 35% from EUR2.86B to EUR 3.83B in 2022.

Noncurrent assets are mainly real estate and equipment valued at around EUR 852M. Non-current Lease liabilities amount to EUR 471M and current lease liabilities of EUR 165M which comes in the form of mostly rental stations lease and airport licenses.

Revenue and Earnings

As of 2023, Sixt generates Euro 3.4 to 3.6B in revenue, with about 300-400M in earnings after tax, with about 7500 staff.

For Sixt, 25-35% of rental revenue comes from B2B and large corporate customers, while 65-75% comes from private customers, tourists, and people on business trips. Europe makes up 40-43% of revenues, Germany 29-32%, and USA 29-32%.

Fleet expenses, payroll (1000 new employees were hired in 2023), and depreciation make up the bulk of expenses— with each ranging from 400 to 700M Euros— the 3 expenses bring the total close to 2B or more. Variable lease payments make up the bulk of lease expenses.

Sixt App and Ride Sharing

Should there be a paradigm shift, let’s hope Sixt will be the first mover— management recognizes the importance of offering services such as automobile rental and how ride sharing, car subscriptions, and truck rental. The online car rental segment accounted for 65-75% of the total market revenue.

Sixt provides these services through one application on smartphones, called “one,” where customers can book all products and subscriptions such as third-party services like Scooter and have a better experience after booking their car by helping them with picking up their vehicles or answering questions faster.

Sixt Share is a service for short-term rentals that is flexible on trip duration and return location, much like car-sharing alternative Zipcar in the U.S.

Revenue in the car sharing market is projected to reach around 13B in 2023, and 16B by 2027, with around 65M users.

The trend for more than half of the individuals under 30 is not owning a car. “We want to inspire our customers with digital premium mobility and simplify and enrich their lives without having to own their own vehicle,” Alexander Sixt told Barron’s.

Sixt Ride acts as a platform for third-party partners to offer ride-hailing worldwide. It claims to already have access to a network of more than one million drivers worldwide and has a partnership with Lyft.

With Auto-Flat— Sixt offers an innovative idea on leasing by offering transparent pricing and vehicle replacement every six months with the flexibility to cancel anytime.

Investment into BlackLane

Blacklane offers airport transfers, commutes, and chauffeur services by the hour in over 50 countries. Sixt joins notable investors such as Mercedes-Benz Mobility in a Series F investment which marks the second closing of Blacklane’s series F funding. Blacklane’s chauffeur services will be available via the Sixt app which provides Blacklane the ability to leverage SIXT’s fleet capabilities, offering an even broader choice of vehicles.

Electric Vehicles in Fleet— Removal of Tesla and in with BYD

In 2019 Sixt only had 1% electric cars in their fleet. By 2022, EVs in Sixt’s fleet were 14% in Europe— Sixt aims to have 80-90% of the fleet be electric vehicles by 2030. At the same time, Sixt will be investing 50M to equip their stations and rental lots with charging facilities with an aim to have a network in Europe of 400,000 charging stations.

Recent slowing EV demand has seen several carmakers such as GM and Volkswagen to scale back production. Benz said the EV price war “brutal” and unsustainable. Tesla’s heavy price cuts to maintain their dominance hurt residual values for rental car companies. Hertz in October 2023 said Tesla’s price drops have lowered resale values of EVs by 1/3.

Sixt ditches Tesla cars for BYD in its electrification push citing abysmal quality, higher collision repair costs, and depreciation compared to combustion vehicles. Sixt has concluded that Tesla is the problem, not electric vehicles in general.

The difference with Sixt compared to Hertz is that Sixt is selling off some of its Teslas, instead of buying fewer than initially planned. While Hertz is taking a step back from electric cars altogether, Sixt is directly eliminating Tesla, as it continues to increase its electric fleet by switching from Teslas to BYDs.

Sixt has then agreed to purchase around 100,000 more electric vehicles by 2028 from BYD under a new partnership agreement. Sixt said it will become Europe's first car rental company to offer BYD vehicles, with the first model to be the BYD ATTO 3, an electric SUV in the C segment.

Sixt has already ordered several thousand all-electric vehicles from BYD for customers in Europe in Q4 2022 and has been quite pleased.  BYD and Sixt have agreed to explore opportunities for cooperation in various regions of the world.

Sixt’s Conservative Refinancing approach— tackling maturities early in 2023

Financing activities resulted in a 2021 cash outflow of EUR 489.3 million and a cash inflow of EUR 17.5 million in 2022, mainly due to lower payments for the redemption of bonds and loans, and higher proceeds from current financial liabilities. At the end of Q3 2022, Sixt managed to pay off an existing syndicated loan of Euro 750M early and replaced it by negotiating a prolongation of revolving credit facility of Euro 950M until 2028. In addition, the terms of the credit line were extended through 2027 with options through 2029.

Sixt’s bond issuance in June 2023 was 300M Euros, the private placement of additional borrower’s notes brings the total loan volume up to 314M Euros. Sixt has no premature repayment of bonds and borrower’s note loans with fix interest rate due in 2024 due to favourable interest rates.

Cashflow and Financials

Sixt’s gross cash flows generally fluctuate between EUR 800M to 1.2B. With depreciation on rental vehicles accounted for before changes in net working capital gives a smaller cash flow of 500 to 750M. Inclusive of changes in working capital and rental vehicles, results in a cash outflow from operating activities of around 200-300M, with cash inflow ranging from 90-230M.

Sixt responded to the ongoing difficult vehicle procurement situation with longer vehicle holding periods and countercyclical procurement in the previous year and the holding of vehicles over the turn of the year. These changes are primarily due to Sixt’s necessary expansion in the U.S for their rental fleet. Investing activities results in an average annual cash outflow of 60-90M.

As a result, the desired fleet size was achieved despite lower investments compared with the previous year. In 2022, Sixt added around 146,200 vehicles (2021: 167,000 vehicles) with a total value of EUR 4.92 billion (2021: EUR 5.12 billion) to the rental fleet. The average value per rental car is around the range of Euro 30-35k.

Risk

Risks come from potential recession, increase in gasoline prices, leases for airports with little traffic, an inadequate fleet to meet proper utilization and expansion, and inflation impacting disposable incomes.

Sixt claims to have a ROE of 25-30%. I think this is overstated as cashflow generated is less than it seems. In addition, capital expenditures from fleet expansion and station rentals will have to increase significantly for increased market share in the U.S, which will have to be funded by long term debt. ROE is 15-20%; if we consider debt, ROIC is 6-9%. However, debt to equity, is already around 180% and debt to capital is around 65%. Additional leverage is possible, but risky, despite upcoming maturities lined up in a conservative fashion.

In Sixt’s effort to gain more pricing power and lower their costs by expanding in the U.S, no success is guaranteed. This is not a sure win, high probability scenario, and remember, the faster the expansion, the faster the collapse. The Roman empire rose faster than the British empire, but the British empire experienced a slower decline because it took longer to build their colonies. However, we also must consider that the family has a huge 58% stake at hand and tends not to make foolish acquisitions to shoot themselves in the foot. During the corona virus, Sixt made 2 acquisitions in the Van & Truck sector in the U.K in Dorset Rentals.

Catalyst

- Sixt gains more than current market share (3-5%) in the U.S by expanding the fleet with already captured high traffic airports

- Demand for premium cars improve when offered at such a reasonable rate and at such a good service

- Selling off problematic Teslas for BYDs proves to be a smart move

- Sixt's integration to apps and online services with ride share prove to be a strategic advantage with collaboration with Lyft and BlackLane

- Debt to capital improves in the future and markets realize Sixt is in a more conservative financial position