Shares of used-car market Carvana continued to plummet on Monday, falling more than 50% over the past two trading days, following a volatile downtrend that began after the company shared results for third quarter Thursday.
Shares fell 15% on Monday to close the day at $7.39 per share, continuing a downward trajectory that began on Friday, when the company posted its worst one-day performance, falling 39 %. The decline began after disappointing earnings due to lower-than-expected sales. Morgan Stanley analyst Adam Jonas on Friday removed his $68 price target and said Carvana ( CVNA ) could be worth as little as $1 a share, citing the poor used car market and volatile financial systems that “add material risk to the outlook.” Jonas replaced his previous target with a base range of $1 to $40 per share.
The continued rapid decline led to brief trading halts into Monday morning due to market volatility.
Carvana’s decline points to a broader trend in the used car industry, as car prices that have been high fall due to rising interest rates and talk of a recession. That could mean the cars Carvana bought in recent months could soon be worth less than the company anticipated.
The problems for the used car world started months ago, with car prices so high that many customers got a discount. Shares of CarMax (KMX), the nation’s largest used car dealer, are down 50% since the start of the year. After a poor performance in September, the company blamed “vehicle affordability challenges stemming from widespread inflationary pressures, as well as rising interest rates and low consumer confidence.”
Car prices had risen steadily over the past two years, helping fuel Carvana’s growth as shortages of parts, particularly computer chips, limited the supply of new cars at a time when the consumer demand for vehicles was particularly strong. These higher prices are a major factor in overall inflationary pressures, as roughly 40% of American households buy a car each year.
The effort to rein in prices has prompted the Federal Reserve to raise interest rates at a record pace in recent months as the central bank tries to ease consumer demand and slow the economy. Auto sales are particularly sensitive to rising interest rates, as many auto purchases are financed by consumers.
The result has been that used car prices are down 10.6% compared to a year ago, according to the Manheim Used Vehicle Value Index, which tracks average used car prices.
Now, used car companies like Carvana are facing the fallout.
“We will always have to go through difficult periods and cycles on our way to fulfilling our mission,” the company wrote in its letter to shareholders last week. “On the other side of this period, we plan to be a better company as a result of having gone through it.”