Carvana stock hits record low as used car prices drop rapidly

(Bloomberg) — Carvana shed about half of its market value in just two trading sessions as the stock plunged to an all-time low as gloom deepened over used-car sales.

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The online trader’s shares are down 49% in two trading days since the company reported disappointing third-quarter results late Thursday, plunging its once-high market value to about $1.3 billion from $2.6 billion before it miss out on profits. That’s a far cry from the $60 billion valuation the company charged last year.

Carvana, which allows its customers to buy a car from anywhere, saw its market value soar last year when supply challenges in the production of new cars drove demand for used cars. That helped lure investors hungry for Covid-lockdown bets, especially given Carvana’s focus on buying at home.

But the environment is changing as supplies dwindle, car production is gradually returning to normal and the cost of used cars is dropping rapidly. In addition, the Federal Reserve’s war against inflation has driven up interest rates, increasing the cost of car financing and affecting consumer demand.

The closely watched Mannheim Used Car Value Index, which tracks used car prices, fell in October for the fifth month in a row, down 10.6% from a year earlier. It’s the largest drop in the index’s nearly 28-year history.

For Wall Street analysts, the transformation presents a major challenge to the Carvana business. On Friday, Morgan Stanley analyst Adam Jonas withdrew his assessment of the company, saying the stock could be worth just $1 because the deteriorating used-car market and a volatile financing and interest rate environment “add material risks to the outlook.”

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The average analyst price target for the company is down nearly 30% since Thursday’s close.

“Cars are very expensive, and they are very sensitive to interest rates,” Carvana CEO Ernie Garcia said on a conference call with analysts last week.

– With the help of Wittstein’s neighbors.

(Updates with closing prices all the time.)

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