Carvana stock craters as outlook darkens for used vehicle market

Shares of carvana were on pace for their worst day on record on Friday after the company missed Wall Street revenue and earnings expectations for the third quarter as the outlook for used cars plummets following record demand, prices and profits during the coronavirus pandemic.

The stock cratered around 40% in midday trading. Shares of the online used-car retailer have fallen more than 95% this year, after hitting an all-time intraday high of $376.83 per share on August 10, 2021. Carvana’s current worst trading day has was a drop of 26.4% on March 18. , 2020.

The stock is near an all-time low of $8.14 per share, which came less than a week after the stock began public trading on April 28, 2017.

Morgan Stanley withdrew its rating and price target on Carvana on Friday. Analyst Adam Jonas cited the deterioration in the used car market and a volatile funding environment for the change.

“As the company continues to pursue cost reduction actions, we believe that a deterioration in the used car market combined with a volatile interest rate/funding environment (bonds trading at a yield of 20 %) add significant risk to the outlook, contributing to a wide range of outcomes (positive and negative),” he wrote in a note to investors on Friday.

Used vehicle prices and profits have risen dramatically as consumers who could not find or afford to buy a new vehicle have opted for a used car or truck. Inventories of new vehicles have been significantly depleted during the coronavirus pandemic, largely due to supply chain issues, including an ongoing global shortage of semiconductor chips.

But rising interest rates, inflation and fears of recession have reduced consumers’ willingness to pay record prices, driving declines for Carvana and other used-vehicle companies such as CarMax.

Major new and used vehicle franchise dealerships such as Lithia Motors and AutoNation warned of softening in the used vehicle market with the recent release of their third quarter results.

CEO and Co-Founder of Carvana, Ernie Garcia in a call on Thursday, described the next year as “challenging” for the company, citing a normalization in the used-vehicle industry from its inflated levels and rising interest rates, among other factors.

“Cars are an expensive, discretionary and often financed purchase that has ballooned far more than other goods in the economy over the past couple of years and that is clearly impacting people’s purchasing decisions,” a- he declared.

Garcia described the end of the third quarter as “the most unaffordable point ever” for customers financing a vehicle purchase.

Almost every aspect of Carvana’s operations was down year-on-year during the third quarter, including a 31% decline in gross profit to $359 million. Its retail units sold were down 8% from the third quarter of 2021 to 102,570 vehicles, while gross profit per unit – a metric closely watched by investors – fell more than $1,100 to 3 $500.

Carvana posted a bigger-than-expected loss of $2.67 per share. Revenue also fell short of expectations at $3.39 billion, versus estimates of $3.71 billion, according to Refinitiv.

—CNBC Michael Bloom contributed to this report.

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