Shares of Carvana Co. (NYSE: CVNA), an e-commerce platform for buying used vehicles with the option of delivery or picking the vehicle up at the closest automated vending machine location, are down 11% as of 3:47 p.m. EST as more China tariff uncertainty pulled automakers lower. The drop might also be related to an announcement CarMax (NYSE: KMX) made that could affect Carvana.
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Detroit automakers General Motors, Ford, and Fiat Chrysler Automobiles fell 4.7%, 3.9%, and 4.2%, respectively, after the White House economic advisor walked back President Donald Trump's suggestion that Beijing had agreed to reduce tariffs on U.S. manufactured cars. Nothing official has been signed or delivered, and Beijing has been silent on the issue, which has led to another rise in uncertainty regarding important tariffs between the two economic powers. There's definitely potential for a trade war or vehicle tariffs to indirectly hurt Carvana, but the used-car retailer should be less affected than manufacturers and suppliers.
While it's likely the broader auto sell-off that's pulling Carvana lower today, investors would be wise to keep track of an overlooked announcement from CarMax, a direct competitor to Carvana. Tuesday, CarMax, the nation's largest retailer of used cars, announced a rollout of a new customer-driven buying experience that is launching in Atlanta, Georgia. Eventually, management is eyeing a nationwide rollout that, for the first time, will enable consumers to buy CarMax vehicles from home, in-store, or some combination of the two methods, with the option to have the vehicle delivered directly -- sound familiar, Carvana investors?
It's not surprising that CarMax would develop a program similar to Carvana's e-commerce platform, as the latter has delivered explosive growth. Carvana's retail units sold jumped 116% during its impressive third quarter, compared to the prior year, with total revenue jumping 137%. It was Carvana's 19th consecutive quarter of triple-digit unit and revenue growth. In the third quarter alone, Carvana sold more units than it did in all of 2015 and 2016 combined, and the young used-car e-commerce retailer seems to have caught CarMax's attention.
Going forward, both potential tariff uncertainty and CarMax's ability to take a page from Carvana's e-commerce playbook are out of investors' hands. Carvana's management will need to focus on delivering an even better e-commerce platform and tout its automated car vending-machine experience to continue expanding its reach and retail units sold.
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