Kyte, a rental car startup that positioned itself as a prime “best alternative to Hertz,” is significantly reducing its operational footprint across the United States. In a strategic move to ensure its survival, Kyte Car Rental is withdrawing from the majority of its major markets and has reduced its workforce by approximately half. This decision comes after the company explored potential sale options earlier in the year.
The company’s revised strategy will concentrate its services exclusively in San Francisco and New York City, including Jersey City. CEO Nikolaus Volk stated to TechCrunch that this refocusing is aimed at achieving profitability within the next 18 months. Kyte car rental has already begun the process of exiting prominent markets such as Atlanta, Chicago, Boston, Washington, D.C., Philadelphia, and Seattle. Customers in Los Angeles have been informed of the suspension of operations in that city, effective after November 7, as reported by Curbivore.
Volk confirmed that Kyte recently implemented workforce reductions between 40% and 50%. Former employees indicated to TechCrunch that the engineering, consumer, and growth product teams were the most significantly impacted by these cuts.
“In the current capital-constrained economic climate, where raising capital is exceptionally challenging, we must prioritize our strongest performing markets,” Volk explained. “Difficult choices were necessary to ensure the long-term viability of the business.” He further noted that New York and San Francisco represent Kyte’s largest revenue streams, accounting for approximately 70% of the company’s total revenue.
Kyte car rental attracted $9 million in funding in 2021 and subsequently closed a $60 million Series B funding round in 2022. The company’s initial value proposition centered on providing a flexible and user-friendly rental car service, distinguished by its vehicle delivery service directly to customers. Upon announcing the Series B funding, Kyte articulated its ambition to become the world’s “largest operator of shared, electrified, and autonomous fleets.”
The company rapidly expanded its operations to over a dozen markets throughout the U.S. and increasingly relied on debt financing to fund its vehicle acquisitions. Kyte secured a $200 million debt financing agreement in 2022 with Goldman Sachs and Ares Capital, followed by an additional $250 million agreement in March 2024 with Barclays and Waterfall Asset Management.
However, as the summer progressed, Volk acknowledged that it became apparent that the unit economics of Kyte car rental’s business model were not generating sufficient free cash flow in the expanded markets. He disclosed that the leadership team explored the possibility of selling the company but ultimately decided to pursue a restructuring to prioritize achieving profitability.
This strategic shift necessitated a narrowed market focus, leading to the current restructuring. Volk also mentioned the recent completion of a new funding round to support the restructured business, although he refrained from disclosing the specific amount raised.
The car rental and subscription service sector, particularly companies heavily invested in electrification, has encountered significant challenges recently.
Hertz, a major player in the rental car industry, announced plans in 2021 to acquire 100,000 Tesla vehicles to electrify its rental fleet. However, the company ultimately purchased only around 35,000 vehicles and proceeded to sell a substantial portion of these EVs earlier this year. Similarly, Autonomy, a startup founded by TrueCar founder Scott Painter, fell short of its ambitious goal to build a fleet of 23,000 EVs and announced a strategic pivot towards software services and data sales earlier in the year.
Despite Kyte car rental’s previous pronouncements in 2022 regarding electrification, Volk indicated that the company had not deeply committed to transitioning its fleet to electric vehicles. In retrospect, this limited investment in EVs may have been beneficial, allowing Kyte to pursue restructuring. Volk stated, “retrospectively, that we did not lose a bunch of capital here on residual values falling down, [which] was very good.”
This story has been updated with additional context about revenue and cash flow in Kyte’s markets.
