What do I learn from your numbers?
Is it a macro read on where the US economy is, or is it an operational read
on what you guys did at Carvana? I think it's it's the latter.
I think our team has done an incredible job last couple of years.
As you said, we had, you know, 22 and 23 were pretty tough for us after an
incredible run from 2013 through 2021. We are growing very fast and customers
were migrating more and more to online purchasing of cars.
When we went through that period, I think the team came together.
We responded incredibly well and I think this quarter is is undoubtedly the best
quarter we've had in our history. It's a result of a ton of hard work.
It's a result of the team coming together and doing an awesome job.
So to all of you out there, thank you very much.
Great job. When we take a look at some of your
profit margins, I mean, it looks like you're making like, what, 3000 plus for
a car? This is so much more ahead of your
competition. How do you do that and how do you keep
growing that? And is that sustainable?
Sure. Let me start with this.
I think, you know, what we're most proud of is when we set out to try to build
Carvana, we wanted to give customers the best deal we possibly could, one, to
give a better deal in the competition. We wanted to give them an experience
that was simpler, a broader selection, and we wanted to build a business model
that could ultimately have higher returns in the traditional business
models you had had. And that's very difficult to do.
The only way you can do all those things it wants is to build a completely
different business. And so, you know, we've built a
transaction flow where customers can go through on their own, they can get
approved for financing, they can select the car that can take seconds.
They're in control of the entire thing. And then we've built an entirely new
supply chain underneath it with reconditioning centers and logistics
that allows us to give customers access to a nationwide inventory and ship cars
around the country. And the economics of it all is very
different. There were a lot of fixed costs in
building that system, but the variable costs are much lower and then we're
monetizing it more completely by being more vertically integrated.
So it allows us to check all those boxes and hopefully we keep doing the same.
There was a lot of discussion, I mean, prior to this year about the debt load,
Ernie, I know that at least that stabilized.
Do you anticipate that we could see a reduction on the balance sheet this
year, a significant reduction? Yeah.
So I think, you know, we made this even yesterday in our earnings call that we
plan to pay cash interest on our bonds over time.
We do plan to deliver over time. And I think all that's enabled by the
incredible progress we've made. You know, we were extremely proud to
report $235 million of EBITDA. Q One, you annualize that, you that's
about $1,000,000,000 a year and we're 1% of the market.
So, you know, we clearly are sitting in front of a huge, huge opportunity and
it's our team's job to execute really well into that opportunity.
I think we have pretty great things in front of us.
If we do as part of that opportunity. Are you able to acquire cars at a more
reasonable or I should say, a more favorable price than maybe in the year
past? Sure.
So I think, you know, part of our business is buying cars from our
customers so customers can go to our website, we'll give them a value online
and in minutes, and we can come pick up the car from them as soon as the same
day, or they can come drop it off to us. That's the way we get the majority of
our cars. That's an experience that customers
love. They can get paid quickly.
It's an experience that we're well positioned to provide because we have
that underlying logistics network that allows us to buy cars from them and then
ship them to wherever they're most valuable.
There are there are oftentimes differences in car values around the
country. So we can, you know, buy them wherever
they are and then sell them in the places where they're more valuable.
And that works out great for our customers that are selling cars because
they get a great value and also great for our customers that are buying cars
because they have access to such supply. Is there any sort of trend line that
you've seen in terms of the types of cars that people are gravitating to
right now? I think it's first order.
You know, the most interesting storyline there is is probably what's going on
with EVs. And I think, you know, the EV market
generally looks a lot like the U.S market, but but it trails and so, you
know, last year these were around 1% of U.S car sales.
They are around seven and a half percent give or take of new car sales this year.
They're starting to ramp up and they're they're heading in the direction of
where new cars are. New cars are also growing as well.
So we've seen more demand there. But I think in general, it's you know,
customers have been looking to save money as car prices went up and as
interest rates went up. So we've seen that as a as a multiyear
trend, but nothing too notable beyond that, um, are the high borrowing costs
for cars at all like our for, for auto loans affecting at all what people are
buying and what price point etc.. Yeah.
I mean, I think, you know, car payments in car payments are basically the sum of
the rate environment and the car price environment and car prices are higher
than they were pre-pandemic. Interest rates are also higher.
And so car payments for customers are higher.
Even on inflation adjusted basis, they're probably between maybe five and
20% higher than they were pre-pandemic. So that has people trying to save money.
And we've seen people trading down to cars that are a little bit older with a
little higher mileage. But then over the last two years, as
we've seen depreciation, we've seen customers start to migrate back in the
direction that they were prior. So our best guess is that probably
continues. But I think, you know, people are trying
to make find a car that fits their life.
