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October New Car Sales & Carvana’s Business

Nov 4, 2022
October New Car Sales & Carvana’s Business

  • New vehicle sales increased to 15.3M on a seasonally adjusted annual rate (SAAR) basis for October, with increased supply allowing for an 18-month high in dealership inventory (32 days, versus pre-pandemic averages of 75 days). Overall incentives crept marginally higher to $1,061 per car (per Morgan Stanley).
  • EV share was 6% of sales, which represents an increase of 72% YoY. Tesla sales were up 39% (estimate) and non-Tesla sales were up 137%. (Both figures again sourced from Morgan Stanley).
  • A significant inhibitor to overall new vehicle supply has been that the Japanese OEMs continue to be especially low in dealership inventory. However, October saw improvements by Toyota, Subaru, and Mazda. An upturn in production from Honda and Nissan would be helpful. Should that happen, along with significant production gains by U.S. OEMs, that would take the pressure off both new and used car prices. As a reminder, the average used car price is now $21K compared to the pre-pandemic level of $14.5K.
  • To provide a view into what’s going on with used vehicle dealers, we took a closer look at Carvana's 3Q22 update. Units sold were down 8% (below), average selling price (ASP) of $24K increased +3% YoY, gross profits per unit was down 36%, and EBITDA/Income/free cash flow were all negative.

Source: Carvana Investor Relations

  • Carvana is still opening new vending machines (Phoenix), its brand building, and inspection & reconditioning centers, or IRCs (Richmond, Sacramento, and Chicago). Carvana sells in 315 markets and serves 81% of the U.S. population. In May, Carvana bought the U.S. auction business from KAR Global which had 56 locations.

Source: Carvana Investor Relations

  • Through cost cutting, financial analysts expect Carvana to reach sustained positive EBITDA by 1Q23 and then for it to work towards Carvana’s long-term margin target of 8.5%-13%. Early next year is the expectation for positive free cash flow (FCF) as well. Given that the company’s FCF will be nearly negative $2B this year and our outlook for the economy which we address below, there is a high risk to that expectation.

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