The third-fastest company to ever make it onto the Fortune 500 was Carvana, which made it in less than a year. Its stock has plummeted from its all-time high of over $360 in August to just around $7 a share for the third day in a row.
My first thought when I read the news was, "Maybe the company shouldn't allow robots to pay people more than their cars cost." I sold a seven-year-old car for more than I paid out the door and wrote a story about the perfect storm of factors that led to that outcome. There areStimulus checks! There are chip shortages. Covid is afraid. Demand for vehicles is not heard of. Trust in the system is blind.
It seems simpler after reading through the past six quarters of the company's financial results. Humans buy too many cars. As Carvana saw its first and only quarterly profit, the company continued to tell investors how it would scale up production to meet the demand.
Scaling vehicle production as quickly as possible is a priority for the company. In the third quarter of 2021, the company said it was taking steps to increase operational capacity in order to catch up to demand and support growth in the future.
The growth wasn't there when the new year started. Carvana invested in increasing its vehicle inventory by a billion dollars, but didn't sell as many cars as it could have. It has sold 108,000 cars in the first three quarters of the year, compared to 106,000 in the same period a year ago. The company is now losing nearly half a billion dollars a quarter. The company is trying to get rid of the extra cars it probably shouldn't have bought. The company gets less money when consumers buy and/or finance through its website than when they buy and/or wholesale cars.
The company wrote that they built capacity in most of their business functions for more volume than they fulfilled. In the third quarter, we reduced our inventory by 10%. We expect to further reduce inventory in the last quarter of the year.
Carvana isn't the only company that thinks the good times may not last because of inflation and dried up demand. A half billion dollar loss was reported by Intel this year as PC industry demand tanked just as it had invested big in Graphics Processing Units. The profit slumps are being seen by other chipmakers as well.
It's worse for Carvana because so many of the factors that helped it rise have now fallen apart. Gas prices are sky high, and interest rates are going up, which makes people less interested in buying a car. Manheim's Used Vehicle Value Index shows that the value of vehicles is decreasing again, meaning that the extra cars Carvana purchases may be worth less by the time they are sold. With fear subsiding, people might be more willing to go to a dealership again.
It's not clear if my $20,000 windfall is representative of a real problem for the company or just a coincidence. I can't say if they actually took a loss because I didn't see them attempt to resell my vehicle. Aggressive humans seem to have led the company into trouble. I hope this mistake doesn't lead to mass layoffs.
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