■Can online-only used-car retailers be profitable?
March 11, 2024, ■BY Joshua Novick
■ Carvana's 2023 healthy gross margin and $150 million of net income is proof that this business model is viable.
Industry Surge: ? The #usedcars industry experienced a surge in demand during the pandemic, driven by supply chain disruptions for new cars, resulting in a spike in prices and demand.
??Pre-owned online car retailers saw their stock values skyrocket into the tens of billions. However, these values plummeted as demand normalized.
Carvana's Exception:■None of the online used-car retailers have managed to recover from this decline, except for Carvana, which has seen its stock price increase by over 800% in the past 12 months and has begun reporting robust profits.
■ Carvana's Distinction:
?? Carvana's revenue fell 21% in 2023 (like its peers) to $10.7B but managed to increase gross profit by 38% to $1.7B.
■Gross profit/revenue in 2023 was a healthy 16% (up from 9% in 2022).
??Sales Performance: In 2023, Carvana sold 313k retail units at a stunning average price of $24k per vehicle and 157k wholesale units at an average price of $10.5k per vehicle.
??The average per unit (GPU) in wholesale was $888 (versus $580 in 2022), and the GPU for retail was $5,500 (up from $3k in 2022 and $1k in 2016).
?? Profit Sources:??Interestingly, the $5,500 gross margin per unit, $2,800 came from the retail car margin, while the majority of the per unit margin was generated from other services like financing, selling insurance, trading in vehicles, gap waiver coverage, extended warranties, Financials:
?? Carvana's Net Income was $150M in the year. Thus net income per unit sold was $479, and EBITDA per unit sold $1,084
.■heathy gross margin and $150 million of net income is proof this business model is viable.
Industry Surge: ? The #usedcars industry experienced a surge in demand during the pandemic, driven by supply chain disruptions for new cars, resulting in a spike in both prices and demand.
??Pre-owned online car retailers saw their stock values skyrocket into the tens of billions. However, these values plummeted as demand normalized.
Carvana's Exception:■None of the online used-car retailers have managed to recover from this decline, except for Carvana, which has seen its stock price increase by over 800% in the past 12 months and has begun reporting robust profits.
■ Carvana's Distinction:
?? Carvana's revenue fell 21% in 2023 (like its peers) to $10.7B but managed to increase gross profit by 38% to $1.7B.
■Gross profit/revenue in 2023 was a super healthy 16% (up from 9% in 2022). ??Sales Performance: In 2023, Carvana sold 313k retail units at a stunning average price of $24k per vehicle and 157k wholesale units at an average price of $10.5k per vehicle.
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??The average per unit (GPU) in wholesale was $888 (versus $580 in 2022), and the GPU for retail was $5,500 (up from $3k in 2022 and $1k in 2016).
?? Profit Sources:??Interestingly, the $5,500 gross margin per unit, $2,800 came from the retail car margin, while the majority of the per unit margin was generated from other services like financing, selling insurance, trading in vehicles, gap waiver coverage, extended warranties, Financials:
?? Carvana's Net Income was $150M in the year. Thus net income per unit sold was $479, and EBITDA per unit sold $1,084
.■This ??5,500 gross margin per unit compares with:
??Vroom ??3,100 GPU (online 2023)
??Aramis Group ??2,500 GPU (9 months 2023)
??AUTO1 Group ??2,100 GPU (Q3 2023)
??Cazoo ??1,900 GPU (Q3 2023)
??Traditional used car retailer CarMax GPU was $2,300 in 2023, and the average retail price per vehicle was in the range of $10k.
.■Why Carvana is Special?
??Acquisition Channels: Customers' vehicles, auctions (Manheim), rental companies (like Hertz & Enterprise).
??In-House Reconditioning: Ability to buy all car types and recondition them to a consistent quality.
??Logistics Network: Owns its Inspection & reconditioning centers, Hubs, and Vending Machines, with 80% of the population within less than 100 miles from an auction site to trade in a vehicle. It also delivers cars.?? Interesting Data:
??Carvana has done a good job at optimizing inventory. It went from $1,876M on 12/21/2022 to $1,150M on 12/31/2023.
??Advertising expernditure dropped from 7.4% of revenue in 2016 to only 2.1% in 2023. Clients don't need to be lured via ad spend.
??Carvana sourced and sold over 250k retail units directly from customers in 2023.
??Over 50k cars available on the website at any momentCarvana has led the way; will Auto1, Aramis, and Cazoo follow suit?
#cavana