Carvana is setting itself apart from everyone else in the business of selling automobiles in all the wrong ways, Elon Musk keeps doing the thing Tesla backers really wish he wouldn’t, and the chips: They’re still not coming. All that and more in The Morning Shift for Friday, April 29, 2022.
1st Gear: It Just Keeps Getting Worse For The Vending Machines
This time last year, Carvana was setting records. Supplies of new cars were drying up, and customers were more inclined to stay home, as vaccines were only beginning to emerge and the Delta variant started surging in the U.S. around the middle of 2021. It was the perfect condition for an internet-based used-car startup to thrive.
Now, one year later, Carvana’s shares have plunged 23 percent in merely a week, after the company reported its first-ever sales decline. It gave up on its forecast for 2022 and couldn’t find lenders to fund its acquisition of car auction network Adesa, forcing it to turn to a junk bond sale. And on Thursday, its stock closed its lowest since April 2020. From Bloomberg:
Since touching a stay-at-home fueled high in August, the online platform for buying used cars has fallen 83%. This week alone it lost 23%, following a disappointing first-quarter earnings release that showed a deepening cash burn, stemming from surges used-vehicle prices and capital spending.
Another blow is coming from the bond market.
The company struggled this week to raise $3.3 billion in the corporate debt market, having to revamp a junk-bond offering. Those new bonds fell on Thursday — their first day of secondary trading — even after Apollo Global Management Inc. bought roughly half of the debt.
Carvana’s “financing is done but costly and kicks the liquidity can down the road,” Bloomberg Intelligence’s credit analyst Joel Levington said. “What is left is a vulnerable balance sheet, a consumer that is cooling, and clearly a more difficult road back to the capital markets.”
Carvana’s problems are ten-fold, as the Wall Street Journal explains:
Tempe, Ariz.-based Carvana has expanded rapidly over the past two years, roughly doubling its quarterly sales volume since the spring of 2020 as more consumers shopped online. But the company in recent months has struggled with backlogs in its logistics network and reconditioning centers, due in part to labor shortages stemming from the Covid-19 wave caused by the Omicron variant. In response, it cut purchases of vehicles from consumers and limited the availability inventory on its website.
Inflationary pressures put a damper on sales industrywide during the quarter, analysts said. Rising car prices, which over the past year have bolstered used-car dealer profits, have become a burden for some consumers who are also spending more on gas and other household items.
For consumers, those issues manifest as myriad logistical hurdles, like paperwork foul-ups, delays on titles and registrations and a poor shopping experience with fewer cars listed for sale on Carvana’s site. Meanwhile, competitors in the space — from Copart to AutoNation to Penske — are still finding ways to grow. All three finished Thursday two to eight percent up. Meanwhile, plotting Carvana’s share price history over the last two years on a graph paints a picture of a mountain that everyone’s losing faith that it can claw itself back up.
2nd Gear: Tesla Investors Get Twist Of The Knife
Elon Musk has sold $4 billion more of his Tesla shares, presumably to help fund his $44 billion Twitter bid which has given investors agita. From Fortune:
The stake sale disappointed some Tesla bulls who had hoped Musk would find alternative methods to finance a deal viewed as an expensive and distracting vanity project that only the world’s richest human could possibly afford.
Others were less surprised, pointing to the suspicious surge in daily trading volumes and the 12.7% decline in the stock so far this week. Some 45.4 million shares changed hands on Tuesday and another 41.2 million on Thursday, only the sixth and seventh time this year that the 40-million mark was cracked. Typically volumes are about half that figure.
The Tesla CEO still owns some 168.2 million shares in his company, but a large chunk of that has already been pledged as security for loans and cannot be easily sold.
If it’s any consolation, Musk says he won’t sell any more. Because he probably can’t:
More recently, his stock has served as collateral for $25.5 billion in debt he raised for the Twitter purchase, and there’s reason to suggest he cannot pledge much more.
That’s because Tesla’s board limits the value directors and executive officers can borrow against their holdings in order to guard against any forced liquidation of shares that might embolden short sellers.
Speculators have therefor estimated that as many as 150 million of Musk’s shares, excluding vested stock options, could now effectively be frozen, which may explain why Musk said he’s through selling.
All the while, the company has “shed about $275 billion worth of market value” since the Tesla CEO disclosed his Twitter stake, Bloomberg reports, and an analyst has described April’s events as a “brutal cycle for Tesla investors to navigate.” Indeed, who would’ve ever expected such volatility in attaching their cart to Elon Musk.
3rd Gear: Reminder That This Started With Cars
Nearly 50,000 Model 3 Performance cars have been recalled by Tesla due to a bug where the vehicle’s speedometer won’t display. From Reuters:
The recall covers vehicles from the 2018 through 2022 model years. Tesla will perform an over-the-air software update to address the issue. Tesla said a firmware update released in December unintentionally removed the speed unit from the user interface.
What firmware updates giveth, they taketh away, then giveth back six months later.
4th Gear: This Will Never End
Remember late last year when some experts and executives said the chip shortage would begin to ease up by the end of 2022? They were beginning to see the light at the end of the tunnel. Well, we’re now a bit further along in the never-ending tunnel and wouldn’t you know Stellantis CEO Carlos Tavares isn’t so optimistic. Again, courtesy of Reuters:
“Semiconductor supply is still very short, the situation is very similar to that of 2021. I would say 2022 would not bring a major improvement,” Chief Executive Carlos Tavares saidat an event in Como to promote Alfa Romeo’s new sport utility vehicle (SUV) , the Tonale.
He added, however, that forecasts included in the carmaker’s recent business had been “conservative” and would remain unchanged.
Tavares said the main difference with last year was that the number of troubled suppliers was now smaller, with many having established better control of their operations and supply chains.
“At the moment Stellantis is hurt by a low number of chip suppliers, maximum three or four,” he said, adding that he expects an improvement in 2023.
Some suppliers are starting to get themselves together but there’s still a low number of reliable ones, if I’m understanding that right. Tavares’ last quote there sort of contradicts the paragraph immediately above it, so I’m not entirely sure where Stellantis stands. In any case, the CEO says 2023 is looking better, so let’s remember to reconvene here in a year when that vague recovery date is inevitably pushed back to 2024. An election year. Oh god.
5th Gear: TVR Still Hasn’t Delivered A Single Car
…but it still wants to go racing, in Formula E specifically. That doesn’t seem like a sound business decision for a company that’s been on the ropes throughout its tumultuous rebirth and seemingly yet to display more than one Griffith prototype, but TVR chairman Les Edgar would probably tell me I’m being a major buzzkill. Courtesy Motorsport.com:
“As a sports car company, we need to be in racing; all sportscar companies need to prove their mettle,” Edgar explained.
“Racing is one of the ways to do that. And the pressure that racing at the level that Formula E brings to ensure that you’re at an optimal position with your manufacturing processes, the use of energy is phenomenal, and we’re embracing that whole challenge to help us to design and develop future TVRs.
“We’re not a big manufacturer but certainly we can fight alongside the greats.
“So we’re really, really looking forward to the opportunity for us to prove to you and the rest of the world how good a car company TVR can be.”
Asked if TVR is going to enter Formula E with its own team, chief executive Jim Berriman explained that the brand was first focusing on the impact that the company has with its sponsorship obligations, but suggested that TVR was looking to make a return to racing.
I suppose if this is one of those “entries into motorsport” that amounts to nothing more than a decal on a car — like Infiniti’s tie up with Red Bull and Renault in F1 — then it’s no major risk to TVR. In either case it’d be years out, and even if TVR goes under before the Gen 4 cars emerge in another four years or so, nobody will remember Edgar said this.
Reverse: The Last Olds
It was an Alero. What a way to go out!
Neutral: When Was The Last Time
…you thought about the Nissan Sentra SE-R? Specifically this generation SE-R with the cheeks, pre-facelift. It’s weird to think the SE-R ever existed, if you’re used to Nissan’s non-Z, non-GT-R offerings having all the charm of a pair of Skechers, as has been the case over the prior decade.