5 things about Carvana's numbers that will likely never make sense to me
And a few comments on yesterday's results as well
Though it remained a staple on my interest list for several years, I gave up on Carvana (CVNA) as a short idea a long time ago. There was that one, all-too-brief, shining moment when it appeared the market just might hold both the company and their CEO’s hubris in check, but the stock quickly rebounded after that precipitous 99% decline, leaving the bears (me included) in something of a state of wonder.
From the beginning
I first pointed out CVNA as a silly name back in 2018 which was incredibly early in the cycle; in fact soon after the company came public. At the time the shares were trading in the mid-$20’s and the company already had a market cap bigger than the largest “traditional” publicly traded auto dealership despite sporting a fraction of the revenue and multiples of the losses. The signs were all there for a major revision, as the founder carried around the baggage of the Ugly Duckling bankruptcy from only a few years earlier, and the related party dealings they had with its successor DriveTime just seemed to be rife with the opportunity for self-dealing and fraud. None of that has ever been proven, of course, but it always seemed like an easy thing to move an auto sale from one bucket into the other, especially when both sources were utilizing many of the same facilities.
The market appeared to agree with me at first, and the stock got cut in half over the course of the next few months as the cash bleed continued to grow and expected profitability appeared to be far out of reach. At some point, though, the analyst community (at the company’s direction no doubt) started throwing around some truly large “market opportunity” and expected “penetration” numbers (you know, the old “if they can just get a 5% penetration rate of the 40M used cars sold each year by 2030…”) and before you knew it, this was no longer a story about selling used cars at some sort of a profit, but rather pure momentum (the CEO is currently aiming a bit higher for 3M annual auto sales a year by 2035). It didn’t matter that, at the top during COVID scare (a level that has subsequently been topped), the company had a bigger market cap than the entire publicly traded auto dealership businesses in the country, and losing a ton of money to boot, but rather it was all about the promise of an ever-expanding opportunity.
Back to the future
But as they say, that’s all water under the bridge. During the company’s brief, debt-fueled meltdown, the CEO showed the market some contrition, appeared justly chastised, put forward a plan to get the company out of that hole, and set off on a course-correction journey to get there.
Has he delivered?
Well, the stock price should tell you pretty much all you really need to know, right? Game over. Profitability increased, the debt and interest payments were brought under control, certain costs were reigned in, and the company’s share price responded positively in turn.
Which brings us to…
Yesterday’s results
Retail sales in Q3 2025 were up a stunning 44% year over year on the sale of 156K units, which annualizes to around 600K total units (their trailing 12 month number is 547K units). If the CEO wants to be able to hit that 3M unit target, though, the next 4 years is going to have to be a lot better than the last 4 years.
If you believe that 3M unit number and, just to give them the benefit of the doubt, say they can do it by 2035 or 10 years, that is an increase of 448% from the current levels. But wait, you say, they mean TOTAL vehicle sales you idiot, not just retail sales, so you gotta include wholesale sales into that number, which in turn lowers that 10 year growth rate target down to around 270% from 448%. That appears to be much more doable, but just for kicks, let’s work out the number both ways.
To hit that level just counting retail sales, the company would have to grow at an annualized run rate of around 16% every year for the next 10 years. If you count wholesale as well, the run rate drops down to around 10%.
They just grew the number at 44% year over year (throw in wholesale and it declines slightly to 43%), so that should be totally doable, right?
Well, not so fast.
If you go back 4 years to the company’s Q3 2021 report, they had a trailing 12-month retail sales run rate of around 368K cars, while a year later (after the full effects of the Biden-era inflation reduction act and other free money handouts had kicked in) that number had risen to 438K cars.
So over the last 3 and 4 years their trailing 12 month retail growth rate was about:
547,498 / 438,335 = 24.9% or around 7.7% per year.
547,498 / 384,393 = 42.4% or around 9.2% per year.
Throw in wholesale numbers and the overall growth rates fare somewhat better (they got a somewhat late start with the whole used-car buying and trade-in business), increasing at 8.5% over 3 years and 11% over 4 years.
What does that mean for longer-term growth rates?
If you look at total sales, including wholesale, they would need to average a number over 10 years at a level higher than they have been able to manage over the last 3, or slightly worse than they have done over the past 4. If you just look at retail sales (wholesale sales are really just shuttling your old car from, say, your house, to a local used car auction site) the growth rate would have to be more than double what they have been able to achieve over the last 3 years.
Yes, they did have some hiccups along the way, and it may indeed be smooth sailing from here on out, but things rarely grow in a linear pattern.
Which brings me to…
The 5 things that will likely never make sense to me
While debt and profligate spending may be what initially caused the market some jitters, their debt level isn’t even one of the things that stands out to me as an issue. The 5 things where I continue to have a problem and which gives me a hard time believing anything the company puts out would include the following:
Inflation, especially as it pertains to
Vehicle sales prices
Gross margins
Inventory
Engagement
I go into further detail on each of these areas below. Please consider upgrading your subscription if you care to follow along.