The turnaround is no longer the main story. The business has moved from survival mode to record sales, double-digit margins, and another ambitious expansion plan.
The stock remains volatile and expensive, but the latest pullback offers a more attractive entry into one of retail’s most disruptive growth platforms.
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What Just Happened
The online model is moving into new cars
Carvana Co. (NYSE: CVNA) is testing a new approach to selling new vehicles through seven franchised dealerships carrying Stellantis brands such as Jeep, Ram, Dodge, and Chrysler.
The Dallas pilot replaces the traditional dealership experience with smartphone-based shopping, transparent pricing, and fewer interactions with salespeople. Customers can examine vehicles, arrange test drives, and complete purchases through the company’s online platform.
The physical locations function more like test-drive centers, service facilities, and customer “playgrounds” than traditional sales floors.
New cars remain a small part of the business, with only a few thousand listed alongside tens of thousands of used vehicles. Still, the experiment matters. It gives the company a potential path into a much larger market while using technology, logistics, financing, and trade-in capabilities it already owns.
The stock has cooled
CVNA recently traded around $67 on a split-adjusted basis, below its 52-week high of $97.38. The shares began trading after a five-for-one stock split in May, so older price comparisons need to be adjusted accordingly.
The pullback reflects high valuation, competition, lingering skepticism around the company’s financial structure, and concern that the spectacular turnaround is now fully recognized.
The operating results suggest the growth story still has room to run.
The Latest Quarter Was Another Record
Unit growth remains exceptional
Carvana sold 187,393 retail vehicles during the first quarter, up 40% year over year. It was the sixth consecutive quarter in which retail unit sales increased by at least 40%.
Revenue climbed 52% to a record $6.43 billion. Net income reached $405 million, while adjusted EBITDA rose to $672 million.
Management expects both retail units and adjusted EBITDA to increase sequentially in Q2, setting up another potential company record.
That performance separates Carvana from traditional auto retailers. The company is taking market share while generating profitability rather than simply spending to acquire volume.
Margins are now a major strength
Adjusted EBITDA margin reached 10.4% in Q1. That was down from 11.5% a year earlier, but it remains unusually strong for an automotive retailer growing this quickly.
Management’s long-term target is even more ambitious: three million annual retail unit sales at a 13.5% adjusted EBITDA margin between 2030 and 2035.
Reaching that goal would require years of clean execution. But the Q1 results show the model can already generate meaningful profits at scale.
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Why The Model Is Working
The market remains fragmented
Carvana has become one of the country’s largest used-car retailers, yet its share of the total market remains below 2%.
Most used vehicles are still sold through fragmented local dealerships, independent operators, and private transactions. That leaves substantial room for a national platform that can offer standardized pricing, financing, delivery, trade-ins, and customer service.
Carvana does not need the overall used-car market to grow rapidly. It can expand by taking share from smaller, less efficient competitors.
The infrastructure already exists
The company has spent years building inspection and reconditioning centers, logistics routes, vending-machine locations, financing systems, and a national purchasing platform.
Its ADESA network adds auction sites and physical infrastructure that can support vehicle acquisition, reconditioning, wholesale activity, and local delivery.
As sales volumes rise, more vehicles move through existing facilities. Better utilization can spread fixed costs across more units and improve profitability.
That is the operating leverage behind the long-term margin target.
Software is improving efficiency
Proprietary platforms such as Carli help coordinate staffing, reconditioning workflows, logistics, and vehicle throughput.
Centralized planning gives management a real-time view of inventory and capacity across the network. That helps reduce bottlenecks, shorten reconditioning times, and determine where vehicles should be moved or listed.
This technology does not attract the attention of an AI platform or consumer app, but it is central to the investment case. Used-car retail involves thousands of physical assets moving across a large network. Small efficiency improvements can create substantial savings at Carvana’s scale.
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New Cars Add Optionality
The company can reuse its existing platform
The new-car pilot is interesting because Carvana does not need to invent a separate customer experience. The same platform can support online browsing, financing, trade-ins, fixed pricing, and delivery.
The franchised locations satisfy automaker and state requirements while allowing most of the actual shopping process to remain digital.
New cars can also strengthen the used-car operation. Every new-car sale can produce a trade-in, adding another source of inventory without relying on auctions or direct purchases.
Service could deepen customer relationships
Carvana plans to operate service departments at its franchised dealerships. That gives the company another way to generate revenue and maintain customer relationships after a sale.
Service is still early and requires different operating skills from online retail. But it expands the opportunity beyond one-time transactions.
The larger vision is a platform that buys vehicles, sells new and used vehicles, arranges financing, accepts trade-ins, delivers cars, and provides ongoing service.
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Why The Stock Has A Case
Growth is strong enough to support a premium
CVNA trades at a high multiple compared with conventional auto dealers. The market is valuing it as a technology-enabled retail platform rather than a normal dealership chain.
That premium requires rapid unit growth, sustained margins, and continued market-share gains. Q1 delivered all three.
The shares are also well below their recent high. The stock is not cheap, but investors are no longer buying at peak optimism.
The long-term goal changes the math
Carvana’s target of selling three million vehicles per year is several times its current run rate. Even partial progress toward that level would produce a much larger revenue and earnings base.
The fragmented market makes the target theoretically possible. The challenge is scaling without damaging customer service, inventory quality, or profitability.
What Could Trip It Up
The valuation leaves little room for disappointment
A forward-looking growth story can rerate sharply when unit growth or margins miss expectations. CVNA’s multiple assumes the company will keep taking share and moving toward its long-term targets.
A normal quarter may not be enough if investors are expecting another record.
Debt and financial complexity remain risks
The balance sheet has improved significantly since the company’s 2022 crisis, but substantial indebtedness remains part of the story.
Carvana also has related-party relationships with DriveTime and affiliates controlled by the Garcia family. Those relationships and the company’s dual-class ownership structure deserve continued investor attention.
Growth can strain execution
Selling and processing more vehicles requires inventory, reconditioning capacity, logistics, customer support, and financing.
Rapid growth becomes destructive if vehicle quality weakens, delivery times increase, or customer satisfaction slips. Management must scale the network without recreating the operational problems that contributed to the earlier crisis.
The new-car strategy faces regulatory limits
New-vehicle retail is governed by state franchise laws and automaker agreements. Carvana cannot expand as freely as it can in used vehicles.
The company also needs to prove its digital model works across multiple brands and markets before the pilot deserves a meaningful valuation.
What I’d Watch Next
The first number is retail units sold. Continued year-over-year growth near 40% would confirm that market-share gains remain strong.
The second is adjusted EBITDA margin. Investors need evidence that rising volume is producing operating leverage rather than higher costs.
The third is gross profit per vehicle, which shows whether growth is being supported by sustainable unit economics.
Finally, watch the Dallas new-car pilot. Inventory growth, dealership acquisitions, service expansion, or additional automaker relationships would signal that the experiment is becoming a real second business.
My Take
Buy on pullbacks. Carvana has moved beyond its turnaround phase and is now delivering record volume, revenue, and adjusted EBITDA. Its national infrastructure, software-driven operations, and tiny share of a fragmented market create a long growth runway. The new-car pilot adds valuable optionality without being necessary for the core thesis.
The key risk is valuation meeting execution. The stock still prices in years of market-share gains and margin improvement. Debt, governance concerns, and operational complexity add another layer of risk. I would build the position gradually rather than chase sharp rallies.
Action Recap
🚗 Looking to buy? Buy on pullbacks and build the position gradually. The operating momentum is strong, but the valuation still demands execution.
📈 Already own it? Keep holding while retail units, adjusted EBITDA, and margins continue rising.
⚠️ Main risk to respect: Slower unit growth or weaker margins would quickly challenge the premium valuation.
That’s all for today. Thank you for reading. If you have any feedback, please reply to this email.
Best Regards,
— Adam Garcia
Elite Trade Club
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