Carvana Was Built for Low Interest Rates. Can It Survive Its $8 Billion Debt?

Carvana Co. was custom-built for the low-interest, easy-credit era. It raised billions of dollars on promises of revolutionizing the used-car business via a streamlined online sales model, then it used the money to buy hundreds of thousands of preowned autos and lure buyers with cheap loans. A semiconductor shortage that crippled new-car manufacturers boosted sales, and revenue jumped eightfold over six years. The company built dozens of auto-filled glass towers and repair centers across the US, where customers slide a pancake-size coin into a slot to get their vehicle, as if from a vending machine. Shares that opened at $15 in 2017 soared to $370 by August 2021.

But tighter monetary policy and a rebound in auto production have shifted the company into reverse. Carvana added $1 billion in used vehicles in the months before prices peaked in the spring of 2022. Then, as higher interest rates increased the cost of loans, many potential customers started to reconsider whether they really needed new wheels. Sales fell 23% in the fourth quarter, fueling a $2.9 billion loss on $10.3 billion in revenue last year. As of December the company had $8 billion in debt, 64,000 cars on its lots and just over $400 million in cash (as well as a $1.4 billion line of credit). And those shares? They’re now trading at less than $10. “Will they ever make money?” says Doug Arthur, an analyst at Huber Research Partners LLC. “I think you have to question that.”