Shares of used car market Carvana continued to slide on Monday, dropping more than 50% over the past two trading days, continuing a volatile downward trend that began after the company shared third-quarter results on Thursday.
Shares fell 15% on Monday to close the day at $7.39, continuing a downward trajectory that began on Friday, when the company had its worst one-day performance, falling 39%. The plunge began after disappointing earnings due to lower-than-expected sales. Morgan Stanley analyst Adam Jonas on Friday dropped his $68 price target and said Carvana ( CVNA ) could be worth less than $1 per share, citing the weak used car market and financial system that “add material risk to the outlook.” referring to the volatile Jonas replaced his first target by $1 to $40 per share.
The rapid decline was followed by a series of brief outages through Monday morning due to market volatility.
Carvana’s drop reflects a broader trend in the used car sector, as rising car prices have fallen due to rising interest rates and talk of a recession. This could mean that the cars Carvana has bought in recent months could soon be worth less than the company had anticipated.
Trouble for the used car world started months ago when car prices soared that many customers were priced out. CarMax ( KMX ), the nation’s largest used car retailer, is down 50% year-to-date. After the 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 been rising steadily for the past two years, helping to fuel Carvana’s growth as a shortage of parts, particularly computer chips, limited the supply of new cars at a time when consumer demand for vehicles was particularly strong. These high prices play an important factor in overall inflationary pressures, as about 40% of US households buy a car each year.
Efforts to lower prices have prompted the Federal Reserve to raise interest rates at a historic pace in recent months as the central bank tries to ease consumer demand and slow the economy. Automotive sales are particularly sensitive to rising interest rates, as many car purchases are financed by consumers.
As a result, used car prices are down 10.6% compared to a year ago, according to the Mannheim Vehicle Value Index, which tracks average used prices.
Now, used car companies like Carvana are facing a decline.
“We will always have to go through difficult times and cycles to fulfill our mission,” the company wrote in a letter to shareholders last week. “On the other side of this period, we intend to be a better company, as a result of having passed.”