Carvana shares fall to record lows as used car prices fall rapidly

(Bloomberg) — Carvana Co . wiped out roughly half of its market value in just two trading sessions as the stock plunged to a record low following deepening gloom over used car sales.

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Shares of the online retailer have fallen 49% in the two trading days since the company reported disappointing third-quarter results late Thursday, bringing its once-high market value down to about $1.3 billion from $2.6 billion before the earnings miss. That’s a far cry from the $60 billion valuation the firm commanded last year.

Carvana, which allows its customers to buy a car anywhere, saw its market value skyrocket last year as supply challenges in new car production caused a surge in demand for used vehicles. That helped lure investors hungry for Covid-lockdown plays, especially given Carvana̵[ads1]7;s focus on buying at home.

But the environment is changing as supply snarls, car production gradually normalizes and the price of used cars falls rapidly. In addition, the Federal Reserve’s fight against inflation has sent interest rates higher, raising the cost of financing vehicle purchases and weighing on consumer demand.

The closely watched Manheim Used Vehicle Value Index, which tracks the prices of used vehicles, fell in October for the fifth consecutive month, down 10.6% from a year earlier. It is the largest such decline in the index’s nearly 28-year history.

For Wall Street analysts, the shift poses a significant challenge to Carvana’s business. On Friday, Morgan Stanley analyst Adam Jonas pulled his rating on the company, saying the stock could be worth as little as $1, as the deteriorating used car market and volatile interest rate and financing environment “add material risks to the outlook.”

Analysts’ average price target on the company has fallen approximately 30% since Thursday’s closing time.

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

–With assistance from Jeran Wittenstein.

(Updates with final prices throughout.)

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